Numbers using LISA to purchase first home surge by 15,000

Helen Morrissey, senior pensions and retirement analyst at Hargreaves Lansdown, comments on HMRC’s latest publication of Lifetime ISA data, showing numbers using LISA to purchase first home surge by 15,000.

Key points from publication:

• 50,800 people made withdrawals from their Lifetime ISA to purchase a home in 2021-22. This is a 15,000 increase on the previous year.
• The average withdrawal was £13,192 – a £700 increase on the previous year.
• Withdrawals from a LISA for any other reason than to purchase a first home worth £450,000 or less or for retirement are hit with a 25% charge.
• HL would like to see the government review the £450,000 limit in light of recent house price growth and also reduce the penalty to 20%.

Helen Morrissey says:

“LISAs are playing a vital role in helping people realise their dream of purchasing their first home. We saw 50,800 people making LISA withdrawals for this purpose in 2021-22 – a massive 15,000 increase on the previous year.

“However, reform is needed if more people are to be helped. We might be seeing early signs of cooling in the housing market, but this comes off the back of a long period of huge house price growth and for many first-time buyers, particularly in the South-East, the current limit of £450,000 for a first-time home is becoming increasingly difficult to manage.

“Those who purchase a home worth more than this risk being penalised and losing not only their hard-earned bonus but also a chunk of their own savings too.* 

“We would ask the government to revise the current £450,000 limit in light of house price rises in recent years and also look at reforming the current 25% withdrawal penalty.

“During the pandemic the penalty was reduced to 20% which meant that people withdrawing from their LISA lost the government bonus but kept their savings.

“Reinstating the 20% would be a fair approach.”

*People saving up to £4,000 per year into a LISA qualify for a 25% government bonus, but if they withdraw money for a reason other than to purchase a first home worth less than £450,000 or for retirement, they risk a 25% withdrawal penalty. So, someone saving £4,000 would get a 25% government bonus of £1,000 which gives them a total of £5,000. If they then got a withdrawal penalty it would be 25% of the £5,000 so they risk a penalty of £1,250.

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay