"The Government’s policy of including Lifetime ISAs in the £16,000 savings limit for accessing Universal Credit makes no financial sense at all and risks undoing years of hard work by diligent first-time buyers."
Universal Credit applications have spiked since the Covid-19 outbreak as many workers face being furloughed or losing their job.
Claimants are only eligible for Universal Credit if they have savings below £16,000 and Lifetime ISAs are included in this limit, despite being designed for long term saving.
Industry experts have raised concerns that savers are being encouraged to use their Lifetime ISA savings before claiming Universal Credit, despite facing a 25% penalty for withdrawing funds.
Many are now calling for the Government to remove Lifetime ISAs from the Universal Credit savings limit.
Rob Houghton, CEO of reallymoving, said: “The Government’s policy of including Lifetime ISAs in the £16,000 savings limit for accessing Universal Credit makes no financial sense at all and risks undoing years of hard work by diligent first-time buyers.
“It advises that savers should refrain from using Lifetime ISAs as short-term savings products, because in doing so they could get back less than they paid in due to the 25% penalty applied to withdrawals. Yet conversely, savers are now being encouraged to do exactly that.
“For most people it takes years and a huge amount of effort to save a deposit for a first home, which is now £23,500 on average according to our latest data, yet through no fault of their own many first time buyers are being forced to tap into their nest egg in order to pay the bills in the short-term.
“At the very least the unfair 25% withdrawal penalty should be reduced to ensure the saver always gets back what they paid in, but the Government should go further and remove Lifetime ISAs from the Universal Credit savings limit altogether. Failure to do so could set today’s generation of first-time buyers back several years, on top of the additional challenges of rising loan to values, meaning they could need to save an even larger deposit, and a weaker jobs market.”
