Martin Lewis calls on Jeremy Hunt to fix 'dead duck' Lifetime ISAs after £18.5m in fines

Lifetime ISAs were first launched in 2017 to help people aged 18 to 39 buy their first home or, much less popularly, to save for retirement.

Savers get a 25 per cent government boost when they use the funds to buy a qualifying first home.

But there is a £450,000 cap on the scheme, which has remained unchanged since 2017 – despite house prices increasing 33 per cent in the same time.

In York, the proportion of homes being sold for over £450,000 has doubled from nine per cent to 18 per cent.

Mr Lewis argues the current rules mean many savers are effectively being “fined” and losing their hard-earned cash when they buy properties worth more than £450,000.

MSE research suggests savers have been fined £18.5 million to access their own money since Lifetime ISAs launched. In total, they have been charged £126.8 million – approximately £108.3 million of government bonuses and approximately £18.5 million of their own cash – to access their savings since April 2017.

MSE is renewing our calls on the Government to allow savers using LISA money to buy a home that's now over the limit to withdraw it without penalty immediately. In the longer term, MSE want the £450,000 LISA limit raised to catch up with average property price growth and then index-link the threshold to house prices thereafter.

Mr Lewis said: "There are rumours the Chancellor is looking to introduce new incentives to help first-time buyers. Yet the first port of call should be to fix the unfair scheme that’s currently in play. So I have formally contacted the Chancellor to urge him to make the system fairer.

"Many who have opened Lifetime ISAs (LISAs) with government encouragement now have not only a dead duck product – where they won’t get the promised 25 per cent boost – but one with a poisoned beak, because they’re fined to get their money out.

"The simple solution, which could be put into immediate effect, is for a LISA holder purchasing a first-time property for more than the maximum house price, not to be fined. So, they lose the Government’s 25 per cent bonus, but they get their own money and interest back."The fine was originally put in place to stop people using LISAs for purposes other than what they were intended for. House-buyers aren’t doing that, so they shouldn’t be penalised; they should at least get back what they put in.

"A longer-term idea would be to link and backdate the LISA maximum to national or, better still, regional house price changes.

"So, those who open them have a legitimate expectation they will be able to use them to buy the type of house they’re considering."

Mr Lewis made a similar call on Mr Hunt ahead of March’s Spring Budget and said afterwards that he was “really sorry” no action had been taken.

The Financial Times reported last month that the Chancellor is considering helping first-time buyers through “improvements” to existing ISA products or introducing new tax-free savings options.

A Treasury spokesperson said: “The Lifetime Isa helped over 50,000 people get on the property ladder last year and while the average price of a first time home has increased, it remains below the cap across the vast majority of the country.

“As ever, we keep all aspects of the savings rules, including the Lisa, under review.”