Some 243,900 first-time buyers who purchased a home last year potentially missed out on a collective £243.9m bonus from the Government, data from a savings company showed.
Moneybox analysed market data and found that 56,100 people bought their first home using a Lifetime ISA (LISA) from 2022 to 2023, but with approximately 300,000 first-time buyers over the period based on figures from lenders, others could have missed out on the savings top-up.
The money saved in a LISA can be used to purchase a saver’s first home and, for every £4,000 saved in a year, the Government will add a £1,000 bonus.
Moneybox said that, with the average first-time buyer taking 10 years to build a deposit, people saving the maximum amount in a LISA could receive an additional £10,000.
Brian Byrnes, head of personal finance at Moneybox, said: “Saving the money required for a deposit continues to be one of the biggest hurdles many face on the journey to buying a home. The LISA has been a fantastic helping hand for savers trying to get a deposit together and, perhaps more importantly, it has instilled healthy saving and investing habits that stay with people for life.
“An entire generation of first-time buyers have achieved their dreams of homeownership, with more than 170,000 homes purchased since the product was first introduced in 2017.
“However, with more than 18 million Brits eligible to open a LISA, it is clear that the true opportunity and benefits of this product are yet to be realised at scale.”
He added: “At Moneybox, we have seen first-hand how instrumental the product has been to a whole new generation of homeowners, having helped over 70,000 people buy their first home far sooner than would have otherwise been possible.
“In the last year alone, we have seen a 43% increase in the number of young savers opening a LISA.”
Adjustments to the LISA
Byrnes said a penalty-free allowance should be introduced to LISA accounts. Currently, there is a 25% fee if any money is withdrawn from an account and not used to buy a home or for retirement.
He added: “Since the LISA was first introduced, the UK has endured a global pandemic, soaring inflation, interest rates hikes and a cost-of-living crisis. And, while the Government penalty has helped encourage people to commit to their savings goals, greater flexibility is needed.
“Introducing a penalty-free annual ‘emergency withdrawal allowance’, so savers are not penalised if they need their money in an emergency, could provide greater reassurance to those in need.”
Byrnes suggested the property price cap for LISA purchases, which is currently set at £450,00, should rise in line with house prices. He said that, if it did, it would be at £600,000 now.
“Therefore, we are calling for the price cap to be index-linked in line with house price inflation. Last November’s Autumn Statement didn’t bring the progress that we had hoped for, but the Spring Budget represents a huge opportunity for the Government to make relatively small and inexpensive changes to the LISA, ensuring the product remains just as invaluable for the next generation of aspiring first-time buyers,” he said.
Earlier this month, trade bodies called for LISA reform to help first-time buyers.
Related: Lifetime ISA deal with ‘market-leading interest’ launched – Your Money
