AJ Bell has called on Chancellor Jeremy Hunt to reduce the early exit charge on Lifetime ISA (LISA) accounts and increase the limit on the value of a house that can be purchased using a LISA in his upcoming Budget.
The LISA was introduced in April 2017 and offers a 25% Government bonus on savings, up to a maximum of £1,000 per year, for those aged between 18 and 39 who are saving for a first home or retirement. However, the product has two clear flaws that need to be addressed, according to AJ Bell.
The first is the punitive exit charge, which is currently set at 25%. This means that if a saver withdraws money from their LISA before the age of 60, they not only lose the Government bonus but are also hit with an additional 6.25% penalty. AJ Bell is calling for the exit charge to be reduced to 20%.
The second flaw is the frozen limit on the maximum value of a house that can be purchased using a LISA. Currently, this is set at £450,000, which has remained unchanged since the product was created.
Average property prices in the UK have increased by around 35% since April 2017, meaning that the ability of people to use LISAs for the purchase of a first home has been diminished. AJ Bell is calling for the house price limit to be increased to £600,000, broadly in line with house price growth in the last six years.
Laura Suter, head of personal finance at AJ Bell, said: “Hitting savers with [the] penalty [exit charge] is unfair, particularly given the severe financial strain millions of people are set to face in the coming year. The Treasury acted to temporarily reduce the early exit charge from 25% to 20% during the pandemic. It should make this move permanent at the Budget.”
Suter added: “The LISA property price limit should be increased to £600,000, broadly in line with house price growth in the last six years. The current limit hinders aspiring homeowners, especially those in the South East who in some cases will find the home they want exceeds the £450,000 threshold.”
The Government is set to announce its Budget on 23rd March 2023.
