Chancellor of the Exchequer Jeremy Hunt missed out on the opportunity to reform the Lifetime ISA (LISA) system in his Spring Budget, according to Hargreaves Lansdown.
The penalty for early access to LISA funds remained at 25%, despite calls for it to be reduced to 20% in order to help those in need of flexibility to deal with the rising cost of living.
In addition, house purchases using LISA continue to be subject to a cap of £450,000 in value, which has not been updated to reflect rising house prices since the scheme’s introduction.
Hunt used the Spring Budget to introduce various initiatives to stimulate economic growth and boost individual finances, none of which directly addressed the housing market.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “It is disappointing that the Chancellor has opted not to reform the Lifetime ISA regime.
“The 25% penalty on early LISA withdrawals penalises people who have tried to build their financial resilience but then need to access their money during difficult times.
“People may benefit from a 25% bonus on the way in, but the 25% penalty not only takes away this bonus, it also takes a chunk of their hard-earned savings too.
‘Reducing it to 20% as it was during the pandemic would negate this and make LISAs a more attractive product for people looking to build up retirement savings.
“Similarly, those using a LISA to help save for their first home will be disappointed to see there has been no movement on the £450,000 limit on the value of a first home bought with a LISA.
“This limit has not been revised since LISAs were first introduced and in the meantime, house prices have soared.
“First-time buyers in London will find it particularly difficult to find a first home below this amount and could incur penalties as a result.”
