AJ Bell has urged the Government to increase the maximum property value that people can buy using money held in a Lifetime ISA, after its data revealed that first-time buyers could be priced out of using a LISA across 62 UK regions by 2029.
The limit has been kept at £450,000 since LISAs were launched in April 2017, however, the average UK property price has increased by almost 30% in that time.
AJ Bell said the upper limit for properties bought using money from a LISA without penalty would now be £575,550, had it been uprated by the increase in average UK property prices since it was launched eight years ago.
Dan Coatsworth, investment analyst at AJ Bell, said: “Tweaking the maximum property value limit for penalty-free withdrawals from a Lifetime ISA by a small amount each year would make a massive difference to so many individuals.
“Many aspiring homeowners who’ve worked hard to save for a deposit now face the prospect of properties in their desired location exceeding the upper limit in a Lifetime ISA. They must either buy somewhere else with lower property prices or pay the 25% penalty to withdraw their money from the Lifetime ISA.”
Incurring a penalty charge could see an aspiring homeowner left with a smaller deposit than they would have otherwise had, meaning they may have to take out a bigger mortgage which could also come with a higher rate of borrowing, AJ Bell said.
AJ Bell’s data shows that in addition to the 39 areas where the average terrace already costs more than £450,000, a further 23 regions of the UK would be out of reach for first-time buyers hoping to buy a typical terraced home in five years’ time, if no action is taken.
The analysis showed that flats and terraced houses in more parts of London will soon exceed the £450,000 limit, as will terraced houses in Hampshire, Hertfordshire and Surrey. In addition, typical first-time buyer properties in the Cotswolds, South Oxfordshire and parts of Kent are projected to be in the penalty zone over the next five years.
Coatsworth said: “The Government wants to help people achieve their dream of home ownership but the Lifetime ISA in its current form can be more hindrance than help for many individuals. Someone set on a particular location might have no choice but to pay the Lifetime ISA exit penalty if the property is worth more than £450,000. The 25% charge isn’t simply giving the Government back its bonus; it’s also 6.25% of the savers’ own money.”
AJ Bell said the Chancellor should consider reducing the exit penalty to 20% so that savers only give up the Government bonus if their withdrawal circumstances trigger the charge.
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