Nearly all of those who hold a Lifetime ISA (LISA) feel ‘reliant’ on the 25% bonus in order to purchase a home, and want to see the annual limit increased, new research from Atom bank has revealed.
The study found nearly all savers who plan to use their balance when purchasing a home are in some way reliant on the cash bonus (98%), with almost half (46%) stating they were “very reliant.”
Most of those polled (47%) said they felt the £4,000 annual limit for a Lifetime ISA was too low and should be increased, while the majority also wanted the early redemption charge for the Lifetime ISA to be lower or eliminated entirely (59%).
One in five (20%) savers polled said they have a Lifetime ISA, demonstrating its relevance to many of those looking to set money aside on a regular basis.
However, four in five (80%) of savers have a regular Cash ISA, while one in three (34%) have a Stocks & Shares ISA.
There had been significant speculation about potential reductions to the Cash ISA limits in recent weeks, though protests from savers and providers have stalled any plans from the Chancellor to announce a cut.
The research conducted on behalf of Atom bank highlighted the important role that Lifetime ISAs play for aspiring homeowners, and identified hopes that the products will be made more effective in future, rather than stripped back by the Chancellor.
Currently Brits can save up to £20,000 per tax year in ISAs, though only £4,000 of that can go into a Lifetime ISA.
The Lifetime ISA then rewards savers with a bonus of 25% on the sum saved each year, up to a maximum of £1,000. Under the current terms of the Lifetime ISA, savers who withdraw sums for a purpose other than buying a home or for their retirement are subject to a 25% early redemption charge.
Perhaps unsurprisingly, over a third (36%) of savers thought the 25% charge should be lower, while nearly a quarter (23%) thought it should be removed entirely.
Chris Storey, chief commercial officer at Atom bank, said: “Reforms of the Lifetime ISA are long overdue.
“With rising house prices and ongoing affordability issues, the Lifetime ISA risks being left behind, which is particularly troubling given the number of savers who are reliant on it to build a sufficient deposit.
“At a time when many are struggling to save and get on the property ladder, we should be developing products that make it easier for people to grow their hard-earned savings and buy homes. This is a key part of encouraging economic growth and prosperity.
“The fact that some first time buyers could be penalised for accessing their Lifetime ISA has been well documented, so hopefully areas like the £450,000 limit are addressed as part of the broader conversation on ISA reforms in the coming months.”
