In a long awaited response to the Treasury Select Committee’s report on the Lifetime ISA (LISA), the Government started positively, by explicitly acknowledging ‘the importance of the Lifetime ISA in supporting people to achieve the aspiration of home ownership’.
Without a doubt, this much needed product is delivering on its original purpose and helping young people save and invest earlier in life towards their first home and, for many, plan for their retirement. In London alone we’ve seen a 32% year on year increase in Moneybox LISA enabled house purchases year to date.
The full potential is yet to be realised but we believe, with a few simple updates to the product rules, which we have been calling for, many more young people could benefit in the years ahead.
One such barrier we were hoping would see a commitment to future proof is the property price cap. In London, the average amount paid so far this year for a Moneybox Lifetime ISA enabled house purchase was £370,000, however, the average property price in the capital is much higher. While wages in London are also typically higher than the national average, they are far from double the national average as is such with the property prices in London.
In June the average price of a property sat at £561,000 in London vs £291,000 nationally. With the property price cap set at £450,000 when the Lifetime ISA was introduced, this cap has remained static while house prices have soared.
We believe there is a strong case for committing to an annual review of the property price cap to ensure it keeps pace with the ever-changing market. A regular review would mean the Lifetime ISA remains a relevant and effective tool for a wide range of first-time buyers, regardless of where they live and provide savers with the confidence they need to open and fully benefit from a Lifetime ISA.
Another product rule we have been calling on the Government to review is the 25% withdrawal charge. While this is designed to encourage long-term saving, it can lead to a punitive outcome for those who need to access their funds for reasons other than a first home or retirement.
In recent HMRC research, 42% of those who don't currently have a Lifetime ISA said they would be most likely to open one if the rules were changed so that original savings were not lost when paying the withdrawal charge. This simple change would not only make the product more appealing but would also make it more flexible for those in London. It’s no secret that the steep costs of living are felt very keenly in the capital creating significant affordability concerns for some who wish to settle there.
As the UK’s largest provider of Lifetime ISAs in the UK, we’ve seen first-hand just how invaluable this product has been in helping hundreds of thousands of young people build positive saving and investing habits early in life, and buy their first home far sooner than would otherwise have been possible - all across the UK.
Across the UK, to date, the LISA has helped almost a quarter of a million people get the keys to their first homes, and the latest HMRC data shows that 1.3 million people are currently saving or investing through one. Yet we believe these stats, while positive, are only scratching the surface of the LISA’s potential, and many more young people could benefit from it in the years ahead. While the backing of the Lifetime ISA is a promising step, there's a strong case to be made for further improvements to help even more people achieve their goals. The current rules, while well-intentioned to keep the Lifetime ISA focused as a long-term savings product, create barriers that could and should be addressed.
The government's recent response marks a promising step forward and signals a clear commitment to safeguarding the Lifetime ISA's future as a product that works. At Moneybox, we will continue to champion the needs of Londoners, either as aspiring first-time buyers or as a generation of savers, working with the government to advocate for changes that will unlock the Lifetime ISA's full potential - and help even more people get on the path to a brighter financial future.
Brian Byrnes is the Head of Personal Finance at Moneybox.
