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BSA calls on the Chancellor to support first-time buyers in the Spring Budget

Building Societies Association

5 min read Partner content
  • Increase and equalise the Lifetime ISA and Help-to-Buy ISA property price thresholds and review every year
  • Reduce the Lifetime ISA withdrawal penalty to stop savers’ own cash being raided

Two Government savings schemes which support aspiring first-time homebuyers have not been reviewed since they were introduced in 2015 and 2017, despite significant changes in the housing market. This means the schemes no longer provide the level of support they were initially set up to offer, and in some cases, charge savers a penalty which eats into their own savings despite them opening the account in good faith.

The Building Societies Association (BSA) believes these issues are contradictory to the schemes’ original intentions and is urging the Chancellor to review them in next month’s Spring Budget.

How the schemes work

Help to Buy ISAs (HTB ISA) and Lifetime ISAs (LISA) have already helped hundreds of thousands of first-time buyers on to the property ladder, by giving a 25% boost to their savings when they buy their first home. To receive the bonus the property purchased must be within the price thresholds set in the scheme rules.

Despite a huge 35%1 increase in house prices over the last five years, the thresholds on both schemes have remained unchanged. This is preventing some first-time buyers’ from buying a home within the price limits. But if LISA account holders access their savings and buy a property which is above the thresholds, they must pay a penalty payment of 25% of the total savings pot. This means they not only lose all of the Government bonus, but a chunk of their own savings too.

For somebody who has saved £4,000 a year for five years in a LISA, the penalty for using their savings towards buying a house above the £450,000 threshold would be all the Government bonus of £5,000, plus an extra £1,250 of their own savings.

To ensure these schemes continue to be relevant to first-time buyers, two crucial changes are needed:

1. Increase and equalise the Lifetime ISA and Help-to-Buy ISA property price thresholds and review every year

There have been considerable house price rises since the two schemes were introduced leaving a gap between average house prices and the LISA and HTB ISA thresholds, compared to the schemes launch dates. Also, a lower threshold is applied to properties outside London for would-be first-time buyers who are saving in the HTB ISA (£250,000 outside London / £450,000 in London), whereas the threshold applied for those saving in a LISA (£450,000) is the same whichever part of the country they buy in.

The BSA is calling on the Government to equalise the thresholds in the two schemes and increase it to £550,000 with immediate effect. This reflects most of the growth in house prices since the schemes were launched. Once this change has been introduced, it’s important that the thresholds continue to be reviewed on an annual basis to ensure they remain in step with house price changes.

2. Reduce the Lifetime ISA withdrawal penalty to stop taking savers own cash

Reducing the LISA penalty withdrawal fee from 25% to 20%, would allow savers to retain all of their own savings, whilst forfeiting the Government bonus, if they buy a property above the scheme threshold or if they need to access their savings, which may be necessary due to the effects of the rising cost-of-living. This change was introduced on a temporary basis during the Covid pandemic (6 March 2020 – 5 April 2021). The BSA is urging the Chancellor to re-introduce this on a permanent basis, ensuring the spirit of these savings schemes, which is to encourage young people to start saving to buy their first home, remains intact.

Andrew Gall, Head of Savings and Economics at the BSA said:

“Trying to take the first step onto the property ladder is a challenge for most new homebuyers, with our Property Tracker Report regularly showing that saving for the deposit is one of the biggest barriers to achieving this dream. We therefore warmly welcomed the introduction of the HTB ISA and LISA savings accounts when they were launched.

“However, by not regularly reviewing the schemes, they no longer provide the support intended when they were launched. If they are to continue to help first-time buyers, they must keep pace with changes in the housing market.

“Regularly reviewing the threshold in line with house price inflation is the first crucial change needed. Whilst the current £450k LISA threshold will be sufficient for many parts of the country, in other areas homebuyers may struggle to find a suitable property at this price point.

“We also want the Government to make LISAs fairer by reducing the withdrawal penalty, so that only the bonus is forfeited for those who access their saving, whether that’s to buy their first home at a price above the threshold, or those who simply need access to their savings – particularly under the current cost-of-living challenges. Savers who open an account in good faith, should not be financially penalised if, for whatever reason, they cannot meet the specific requirements of the scheme.”



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