Moneybox: The Lifetime ISA should be celebrated and protected for next generation of homeowners
Ahead of the Spring Budget (15 March 2023), Cecilia Mourain, Managing Director at Moneybox Home-buying, the leading provider of the Lifetime ISA (LISA), comments on the importance of protecting LISA for next-gen homeowners:
“While there has been some criticism levelled against the Lifetime ISA of late, let’s not forget that this unique savings account was first introduced to ‘encourage younger people to get into the habit of saving …so they no longer have to choose between saving for their first home and planning for later life.’
“By these measures, the LISA has already been a great success and the full opportunity and benefits are yet to be realized.
“Since 2017 when the product was launched, an entire generation of first-time homeowners have benefited, with more than 118k homes bought with a Lifetime ISA across the length and breadth of the country.
“Moneybox data reveals that 80% of LISA savers are focused on saving a deposit for their first home, 20% are saving for a more comfortable retirement.
“Consumer demand is increasing rapidly, +40% in the last year, and on average people now open a Lifetime ISA at 26, down from 29 in 2017/2018.
“While market conditions have changed considerably since 2017, every day we see how invaluable the Lifetime ISA continues to be, encouraging young savers to plan for their future and build positive saving habits which will see many achieving these important financial goals far sooner than would have otherwise been possible.”
£450k property price cap affects only 1% of Moneybox LISA customers:
“Our data consistently shows that the Lifetime ISA is succeeding in supporting those who need it most.
“Nearly three-quarters of Moneybox LISA savers earn less than £35,000. The average price of properties purchased by our LISA customers is £270k.
“This is broadly in line with the average property price for first-time buyers, across the UK, which stands at £246k according to the latest UK House Price Index,
“The £450,000 property price cap has affected <1% of our LISA customers and so it’s clear to see that the Lifetime ISA is working well for 99% of our first-time buyers.
“Looking forward, for the next generation of aspiring homebuyers who are still on their deposit-saving journey, we believe the £450,000 limit should increase by a measure of inflation (e.g. House Price Index) to ensure the product remains fit for purpose for all those who need it most, into the future.”
Impact of LISA penalty should not be overstated so that it deters young savers who could benefit immeasurably:
“If used as intended, the Lifetime ISA is the only inflation-busting savings product available to help young savers achieve these important financial goals.
“While it is essential that all those thinking about opening a Lifetime ISA, understand that a 25% penalty will be incurred if funds are withdrawn for reasons other than buying a first home or on retirement, it is also important to put this in context.
“LISA savers benefit from a 25% government bonus, so, if they save £100, they will get £25 from the government.
“If they then withdraw that £125, they need to give 25% back to the government, leaving them with £93.75 in their pocket. This means they will lose £6.25 of their original savings.
“While Moneybox has long campaigned for the LISA penalty to be reduced from 25% to 20% so that no young saver is left worse off should their circumstances change, our data also shows that when people do need to make a partial withdrawal, they withdraw on average £400, which costs them £20 of their original savings.
“On the flip side, all those who successfully saved their deposit with a Moneybox Lifetime ISA, and completed on their first home last year, benefited from more than £2,000 in government bonus payments!
“Without a doubt, LISA rules should be regularly reviewed to ensure the product remains fit for purpose into the future, but for now, let’s recognise and celebrate the impact it has had on so many young people across the country.”
Kindly shared by Moneybox
Main photo courtesy of Pixabay
