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Lifetime Isa saving scheme ‘stopping some from buying a home’

MPs and campaigners have said that the government Lifetime Isa scheme designed to help people save for their first home prevents some from buying a property and leaves others thousands of pounds out of pocket.

They are calling on ministers to review the rules that apply to the lifetime Isa – which lets people save for a first home or retirement – because of fears they are penalising some first-time buyers.

If a person uses the scheme to buy their first home, the property must cost £450,000 or less – a cap that has stayed the same since April 2017, even though average UK house prices as measured by the Land Registry have risen by 35% since then.

Catherine West, the Labour MP for Hornsey and Wood Green in north London, said that “with the rocketing price of the property”, many first-time buyers “are now locked out of using their [lifetime] Isas to buy their first home”.

She added: “This is wrong and illogical, and the government must look again at these rules.”

One couple who have been paying into lifetime Isas since 2017 said the three- and four-bedroom houses they had been looking at were coming in at well above the price cap.

They had been expecting a £10,000 cash bonus after paying a total of £40,000 into their lifetime Isas. However, instead of getting a payout, they face having to hand £2,500 of their own savings to the government, making them worse off than if they had done nothing.

The lifetime Isa was launched in April 2017 and lets people put in up to £4,000 each year until they are 50. The government will add a 25% bonus to people’s savings, up to a maximum of £1,000 a year. That 25% bonus has proved attractive, and it is thought that 1m lifetime Isas have been opened.

But the £450,000 price cap has remained unchanged, despite property values soaring. In April 2017, the average UK house price was £218,000, while in August this year, it was £295,000, according to Land Registry data. In London, the average price was £552,000.

If the lifetime Isa price cap had risen in line with this growth, it would now be about £609,000.

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