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The Money Saving Expert has called on the Government to fix the Lifetime ISA (LISA) fines after failing to commit to address “serious holes”. Martin Lewis said the November Budget could be the perfect opportunity to correct the “brilliant, brittle, and broken product”.
LISAs can be opened by anyone aged 18 to 39, who can put in up to £4,000 a year. If it is used to buy a qualifying property, you can get a 25% bonus. But currently, there is a charge applied when first-time home buyers with a LISA purchase a property for more than £450,000. The Government said this week that the withdrawal charge “ensures that the LISA has been used for its intended purposes: homeownership for first-time buyers or later life savings”. IT added that the £450,000 property cap “supports most first-time buyers across the UK, including those households who may find it difficult to get onto the property ladder”. But the Government’s own research shows that the withdrawal charge puts one in five people off opening a LISA.
While appearing on BBC Radio 5 Live, Martin Lewis said that LISAs are a “brilliant, brittle, and broken product”. He went on: “If it works for you, it’s unbeatable and brilliant.”
The Money Saving Expert said the “real problem” on the housing element is you have to be buying a property under £450,000, “which is fine for most of the country – but people in the southeast of England struggle”.
Lewis said that “the really big problem” is that if you take the money out to use for a property worth over £450,000, you have to pay a fine of 6.25% of your money. He said: “You don’t get back all your money, never mind not getting the bonus.”
Lewis added that this is a “a perverse incentive”, saying: “It puts people off from saving in the first place, even people it won’t affect, because they are scared of that withdrawal penalty.
“And my argument is that what should happen is if you’re buying the property, either you get the bonus or you effectively don’t get a penalty, you can take your money out if it’s being used towards a first-time property. Taking it out for other reasons, then they can charge you the penalty because it was never meant to be [used for] that.
“I’ve also had loads of complaints from people who’ve been absolutely stuffed by it, and it seems to me if we’re going to have a product like that, we should make sure it’s working.
