Real estate professionals across the UK are being urged to pay close attention to upcoming discussions about the future of the Lifetime ISA (LISA), as proposed reforms could significantly impact both first-time buyers and the self-employed looking to build their retirement savings.
Anne Fairweather, head of UK government affairs and public policy at Hargreaves Lansdown (HL), will address the Treasury Select Committee on Wednesday this week to examine whether the LISA remains fit for purpose.
She will be joined by other key voices, including Martin Lewis from Money Saving Expert, to discuss how this financial product could be improved to better serve its users.
The LISA, designed to help people save for their first home or retirement, offers a 25% government bonus on savings of up to £4,000 per year.
CALLS FOR REFORM
However, calls for reform are growing louder, with HL proposing a three-point plan to overcome barriers that limit the LISA’s effectiveness.
A central concern is the age limit on LISAs. Currently, individuals can only open a LISA before turning 40 and can contribute until they are 50.
HL argues that extending these age limits could provide a vital lifeline for self-employed individuals who often start saving for retirement later in life. Increasing the age threshold to 55 would allow those who become self-employed in their 40s to benefit, potentially helping 680,000 self-employed households paying the basic rate of tax.
While the LISA offers flexibility by allowing early withdrawals, the current 25% penalty means savers lose not only the government bonus but a portion of their own contributions as well.
Another pressing issue is the early access penalty. While the LISA offers flexibility by allowing early withdrawals, the current 25% penalty means savers lose not only the government bonus but a portion of their own contributions as well.
HL is advocating for the penalty to be reduced to 20%, ensuring savers only forfeit the government’s contribution if they need to access their funds early. This change could ease financial pressures for an estimated 540,000 self-employed households aged 18 to 39.
The third proposed reform directly impacts real estate. The LISA currently allows savers to use their funds to buy a first home valued up to £450,000.
CAP UNCHANGED
However, this cap has remained unchanged since LISAs were introduced in 2017, despite house prices in England rising by 28% during that time, according to the Office for National Statistics.
As property prices climb, more first-time buyers risk being priced out of using their LISA without incurring the early withdrawal penalty. HL is pushing for the government to either raise the £450,000 threshold or reduce the penalty for those withdrawing funds to buy a home above the limit.
For real estate professionals, these proposed changes could have a ripple effect across the housing market.
An increased LISA threshold would make it easier for first-time buyers to secure homes in high-cost areas, while reforms targeting the self-employed could open up new opportunities for clients struggling to balance saving for both property and retirement.
FIRST-TIME BUYERS
Fairweather says: “The Lifetime ISA plays an important role in helping people realise their dream of home ownership.
“However, the £450,000 threshold on value of home that can be bought has not changed since LISAs were launched in 2017 and the average house price has increased in England by 28% during that time (source ONS up until April 2023).
“This means that first-time buyers will find it more difficult to find a home that they can use their LISA to buy.
“We urge government to consider raising the threshold or reducing the penalty if withdrawals are made to purchase a home over the limit.”
