"The outdated LISA house price cap needs to be reviewed. It was set in 2017 and house prices have risen massively in the last seven years. The price cap works against those who have no choice but to live in a location where homes cost more"
- Jim Islam - OneFamily
Financial mutual, OneFamily, is urging for improvements to be made to the lifetime ISA’s (LISA) property price cap and penalty, to help more people get on the housing ladder.
The lifetime ISA could be part of the solution to the housing crisis in the UK, as it helps young people grow their savings, offering a free bonus of up to £1,000 a year. But if savers want to withdraw money from the account, they are hit with a 25% penalty on the total value, meaning they not only lose the bonus, but their own savings too.
Research by OneFamily shows 5.8million people aged 18-40, who do not have a LISA, would be more likely to invest in one if the property price cap was removed.* If these changes were made, the lifetime ISA would become more attractive to hopeful homeowners, encouraging them to make the most of the free bonus and get on the property ladder.
OneFamily is also asking for changes to the property price cap of £450,000. If LISA account holders were to buy a property worth more than this limit, they would have to pay the 25% withdrawal penalty. OneFamily is calling on the government to make changes to the cap, so people are not unfairly hit by this fee.
The LISA cap is bizarre
Stanley Fulker, a 27-year-old gardener, has a OneFamily LISA which he’ll use to buy a home with his girlfriend, Abbie. However, Stanley believes the government could make improvements by making changes to the property cap and penalty.
Stanley said: “I opened my lifetime ISA in 2021 and it’s really helping me build up savings for our first home, I think it’s a fantastic way to save for a house. It offers a beacon of hope to getting on the property ladder.
“But I don’t think having to pay 25% for withdrawing is fair, something like a smaller admin fee would be better as it would still encourage people to keep their money in there, but people wouldn’t lose their own savings.
“It would be better if there was more flexibility and the cap went up as house prices increased. I don’t really understand why there is a cap at all, I think it is bizarre. The minimum the government could do is to raise the cap, but getting rid of it would be best.”
Reduce the hefty penalty
OneFamily’s CEO, Jim Islam, said: “Young adults are facing high rents and soaring property prices, so the government must give them a leg-up in the Autumn Budget. The lifetime ISA is a superb investment account that could be the solution. It helps young people to grow their savings and get onto the housing ladder, as they can earn a bonus of up to £1,000 a year.
“But if they have to dip into their nest-egg in an emergency then account holders are hit with a hefty penalty. It would be fairer to reduce the penalty to 20%, so they only lose the bonus that they’ve accrued.
“The outdated LISA house price cap needs to be reviewed too. It was set in 2017 and house prices have risen massively in the last seven years. The price cap works against those who have no choice but to live in a location where homes cost more.
“By updating the LISA, it could become an essential tool in helping the next generation to move out of rented accommodation and into the stability of their own homes.”
