According to reports, the government is considering increasing the property value limit on the Lifetime Isa (Lisa) to support more aspiring first-time buyers.
The changes could be announced by Chancellor Jeremy Hunt in the autumn statement later this month.
It is part of a rumored package of help for homeowners, including the reform of the ‘feudal’ leasehold system and the extension of the Mortgage Guarantee.
A Lisa is a popular type of savings account intended to finance a first property purchase or your retirement. The government will top up the money by £1 for every £4 saved, up to £4,000 a year.
Currently, the value of a property bought with the money saved in a Lisa cannot exceed £450,000.
Boost: Savers under 40 can open a Lifetime Isa and receive a 25% government bonus, which could help them buy their first home
The same limit applies regardless of whether the buyer is an individual or part of a couple.
While this is generous enough for many, those buying in more expensive parts of the country, such as London and the South East of England, are much more likely to fall below the limit.
Another argument for increasing the limit is that the cost of an average home has increased by about 25 percent since the Lisa was introduced in 2017, but the purchase price limit has remained the same.
> Should you save or invest in a Lifetime Isa? Read our guide
There is also a limit to how much savers can put into a Lisa each year. It currently stands at £4,000, which some say is inadequate given current house prices.
Brian Byrnes, head of personal finance at savings and investment app Moneybox, said: ‘Aspiring first-time buyers across the length and breadth of the country are likely to be holding their breath as they await the autumn statement after recent reports that help may be on the way .
“There is no doubt that support is needed as it has become increasingly difficult to get onto the property ladder in recent times.”
This year alone, Moneybox, currently the largest Lisa provider, has seen a 43 percent increase in the number of young savers opening a Lisa.
The reason it is so popular is because of the government’s £1,000 annual bonus on the maximum £4,000 per year that can be saved.
That money can only be used for a deposit on a first home or can be withdrawn from the age of 60 to help finance retirement. Anyone who withdraws the money to spend on something else will pay a 25 percent penalty.
It means that people who have been saving in a Lisa for a while may feel like their money is tied up in the account until retirement, when house prices in their area have risen and are now more expensive than the limit.
Two people who buy together can each use their Lisa savings as a deposit, which means they can jointly save up to €8,000 annually.
How much could Lisa’s real estate price limit rise?
At this time, most starters in the market will not be affected by the limit. However, saving a deposit usually takes years and if house prices continue to rise, the current limit could become a real barrier.
According to MoneyBox data, nine in 10 Lisa customers bought their first home for less than £404,000.
In fact, it says less than 1 percent of Lisa savers have been affected by the property price cap so far.
However, the longer the Lisa house price cap remains at its current level, the more people will exceed it.
The average house price in Britain is £291,000, according to the latest Land Registry figures, but some parts of the country are much more expensive.
For example, the average property price in London is £536,000, while in Cambridge the average house price is £513,000 – both above the Lisa limit.
If the government decides to lift the £450,000 limit, the question is by how much.
According to investment platform AJ Bell, the property limit for a Lisa would be £562,500 if it had risen with house price inflation since its launch in April 2017.
However, it suggests that Lisa’s property limit could be aligned with the first-time buyer’s stamp duty break of £625,000.
Laura Suter, head of personal finance at AJ Bell, says: ‘Even though house prices have fallen in the short term, they have still risen dramatically in recent years – meaning many people using a Lisa for their first home are being priced out from the price. Product.
‘The ownership limit for the Lisa has remained stubbornly at £450,000 since its launch in April 2017. On average, UK house prices have risen by 25 per cent since then, and if the Lisa limit had risen with it, it would have. today sits at £562,500 – over £112,500 higher.
‘Many would-be homebuyers will have signed the bills years ago, not realizing that it would take so long to get on the property ladder and that they could potentially hit the property cap in the future.’
No change: Lisa contribution limits of £4,000 per year have not increased since the scheme was introduced in April 2017
Moneybox’s Brian Byrnes added: ‘As we think about the next generation of aspiring homebuyers who are just embarking on a five- to eight-year savings journey, we believe the price cap should be indexed to house prices and subject to an annual interest rate increase. judgement.
‘This will provide much-needed reassurance and peace of mind to Lisa savers who live and work in some of the most expensive parts of Britain, and ensure the product remains fit for purpose for all those who need it most in the future has. ‘
What about increasing the Lisa contribution limit?
The £4,000 per year limit for Lisa contributions has also not increased since the scheme was introduced in April 2017.
If someone had contributed the full £4,000 annual limit in each of the seven years since the Lisa was launched, they would have saved a deposit of £35,000 once the government bonus was added.
According to Zoopla, the average deposit for a first-time buyer in Britain is £34,500. However, it is much higher in some regions, such as London (£144,500), the South East and East of England (both £72,000) and the South West (£52,800).
Increasing the annual limit could allow aspiring homeowners to squirrel away more and realize their homeownership ambitions more quickly.
In addition to increasing the annual allowance, the government should also reduce withdrawal fees to 20 percent, according to AJ Bell.
Currently, withdrawal costs can leave people worse off if they cash in their Lisa without buying a first home.
This is because there is a 25 percent penalty on the amount withdrawn if it is withdrawn before age 60, meaning they could end up getting less than they put in.
Laura Suter added: ‘If someone with the maximum savings of £35,000 is hit with an exit penalty of 25 per cent, they will have to pay an exit fee of £8,750.
‘It means they would end up with £26,250 in savings, £2,250 less than they contributed. If a couple buying together maxed out their Lisas, they would be hit with an exit fine of £17,500 and lose £4,500 of the money they had saved for their deposit.
“Additionally, many buyers will face a last-minute scramble to make up that shortfall.
‘Ending this unfair punishment would be a simple solution for the Chancellor, with the Government reportedly considering a range of measures to support first-time buyers.
“Before they even start addressing new incentives for aspiring homeowners, the government must prioritize fixing this clear flaw in the current system.”
Some links in this article may be affiliate links. If you click on it, we may earn a small commission. That helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow a commercial relationship to compromise our editorial independence.