Lifetime ISAs were introduced in 2017 and allow those under the age of 40 to save up to £4,000 per year, and the Government then tops up this amount by 25%. The account can be used for a home deposit, but there is a cap of £450,000 in all areas of the UK, or it can be used at age 60 as retirement income.
Charlotte Harrison, CEO of home financing at Skipton Group, spoke on an expert panel for the Treasury Select Committee about Lifetime ISAs and said recent research from Skipton – which analysed data from across 363 local authority areas in Great Britain – found that by the end of 2027, the Lifetime ISA house purchase of £450,000 will fall below the average first-time buyer property price in 12% of local authorities in England.
She continued: “Our analysis provides compelling evidence that the purchase price limit of the Lifetime ISA needs to be raised to a minimum of £500,000 to ensure the Lifetime ISA remains relevant for those it is designed to help.”
Harrison also called for a reduction to the unauthorised withdrawal penalty from 25% to 20%, to ensure that savers are “not losing capital as a result of changing circumstances”.
She added that the age limit should be upped from the age of 40 to enable more people to consider the Lifetime ISA as an option for retirement planning.
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Harrison added: “We believe that the Lifetime ISA offers value for money for both the Government and individuals. It is unique in providing an incentive to save for a home purchase. This helps instil good savings habits and builds financial resilience, which are both important Government objectives, in addition to unlocking affordability for a house purchase, particularly for first-time buyers and helping people save for retirement.
“However, for the Lifetime ISA to continue to be successful in supporting with this, we feel it’s vital that our Lifetime ISA recommendations are heard today and considered by the Government.”
She said the firm expected that “there will be a significant increase in the amount of house purchases using a Lifetime ISA over time”.
Harrison noted that the building society currently has over 160,000 Lifetime ISA savers and figures show that Lifetime ISAs have been used in over 227,000 house purchases.
Harrison said Lifetime ISAs with the mutual were mainly used for house purchase, with 70% of customers saying they were using it for their first home and 17% saying they were using it for their first home and retirement.
Only 12% said they were using it only to save for their retirement.
She noted that, given the Government’s one-and-a-half million homes target and commitment to build affordable housing, housing affordability will “remain a key challenge, [and] schemes such as the Lifetime ISA have an important role to play to continue to help unlock affordability, especially for first-time buyers”.
Cash ISA changes could be ‘misguided’
Harrison warned against the proposed cash ISA allowance change, which would reduce the maximum amount that can be saved to £4,000 per tax year. This compares to £20,000 per tax year currently.
The move was criticised last week by Leeds Building Society’s Richard Fearon, who said it would make mortgages more expensive and negatively impact mutuals.
Research from Nottingham Building Society earlier this week also found that cutting the cash ISA tax-free allowance would impact a fifth of savers’ ability to get on the housing ladder.
Harrison said it could have unintended consequences for first-time buyer lending, pointing to building societies’ reliance on retail deposits to fund mortgages and the fact they support over 40% of all lending to first-time buyers.
“This could be misguided and won’t achieve its intended purpose to stimulate economic growth, as there’s no evidence that consumers would invest more in stock and shares if the allowance was reduced,” she said.
Research from the Building Societies Association (BSA) added that most UK savers who use cash ISAs are unwilling to risk their money.
This article was first published on YourMoney.com‘s sister site, Mortgage Solutions. Read: Lifetime ISA deposit cap and age limit should rise and withdrawal penalty should be cut, Skipton’s Harrison says
