The committee's report into the product, released today, noted that 'the Lifetime ISA may not be the most efficient use of taxpayers’ money' to achieve the Government's objective of supporting first-time buyers and encourage long-term retirement saving. As of the tax year 2023-24, just over 1.3 million LISA accounts were open, and HMRC said that just 6% of eligible adults had ever held an account.
Two areas under scrutiny in the report were the price cap of £450,000 - after which users pay a penalty for using their savings to purchase a property - and the withdrawal charge.
It noted that there is confusion around the withdrawal charge. Currently, buyers looking to purchase a home above the £450,000 threshold are not only not eligible for the additional 25% bonus but also subject to a charge for 'unauthorised withdrawal', which applies to the total amount - meaning some savers are effectively being charged to withdraw their own savings. The report stated that a 'significant' minority of account holders - approximately 7% - had made unauthorised withdrawals in the last year for which data was available, indicating that the Lifetime ISA was not working as intended.
There was evidence that an increase in the price cap would be 'necessary', the report suggested - with house prices having increased significantly since its introduction and regional variance in house prices making the £450,000 limit punitive for a number of buyers. However, it concluded that before increasing a price cap - which would effectively be an increase in Government spending - it should be analysed whether the LISA was an effective product at all, and a later conclusion stated it was 'unable' to do so due to a current lack of data on Lifetime ISA holders - necessitating the more in-depth review.
As well as the price cap and withdrawal charge, the review would look at value for money for the government, the age limit on LISAs, the requirement for account holders to have had a LISA for 12 months before purchasing a house, and the product's impact on Universal Credit eligibility.
Charlotte Harrison, CEO Home Financing, Skipton Group said:
“With housing affordability continuing to be a major challenge, Lifetime ISAs (LISA) remain a vital tool for many first-time buyers looking to get onto the property ladder.
“The Government’s review of the ISA landscape is an opportunity to make this important tool as effective as possible.”
Brian Byrnes, head of personal finance at Moneybox comments:
“Having campaigned for many years on behalf of the UK’s largest community of Lifetime ISA savers, we welcome the report today from the Treasury Select Committee as another step towards future-proofing this vital, incentivised saving and investing product. The report marks a further opportunity to engage with policymakers and continue the conversations needed to ensure the LISA continues to offer the best level of support to those that need it most."
“Over the past six months, we have presented compelling evidence to the Committee, much of which has been reflected in the report, showing the powerful impact of the LISA —helping a whole generation of young people build and embed positive saving habits and get on the property ladder far sooner than would have otherwise been possible.
While it is right that the government ensures the LISA provides value for money as part of its review of the product, it is our view that it absolutely does. Nearly 3 million young savers and investors have already benefited from using a LISA, developing healthy saving and investing habits that stick with them for life and nearly 250,000 first time buyers have used the LISA to purchase their first home. All of this has been achieved for a fraction of the overall government budget."
“We firmly believe that by future-proofing the house price cap and amending the withdrawal penalty, the LISA would continue to serve as a highly effective product, helping young people build and embed positive saving behaviours early in life, get more people onto the property ladder, and prepare for a more secure retirement. We look forward to continuing the conversation with the government and Treasury ahead of the Autumn Budget.”
