A HUGE change could be coming in the Chancellor’s March budget in a major boost for first-time buyers.
Jeremy Hunt is reportedly mooting the idea of cutting the Lifetime ISA (LISA) penalty rate and lifting the property limit.
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Consumer champion Martin Lewis has hailed the expected announcement a major “win” for those looking to get on to the property ladder.
LISA’s are savings accounts for those aged between 18 and 39 which the Government tops up by 25%.
They are designed to be used towards the cost of buying your first home or retirement.
Anyone intending on spending the money on a first home has to purchase a property that costs £450,000 or less or pay a 25% penalty.
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For example, anyone who had saved £20,000 would get a 25% bonus on top, worth £5,000.
But, if the money was withdrawn for a property worth £450,000 or more, they would currently pay a £6,250 penalty, effectively losing £1,250.
With house prices rising rapidly in recent years, many with LISA’s have found they’ve breached the £450k limit, leaving them stuck.
However, Jeremy Hunt is said to be considering cutting the penalty rate from 25% to 20% and lifting the property limit to £500,000, reports POLITICO Europe.
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It means those who bought a house worth £500k or more would still have to pay a penalty, but it would be 5% less than currently.
For example, someone with £20,000 saved, and a £5,000 bonus, would pay a penalty of £5,000 rather than £6,250, meaning they would break even.
Money-saving expert Martin Lewis, who has already called on the Government to address the issue, branded the prediction a “win” for first-time buyers.
Posting on X, formerly Twitter, the consumer champion said: “Lifetime ISA win coming in budget?! Good news!
“If true, this’d fix the current dire system whereby when people are priced out and have to buy a home above £450,000 limit the state fines them to get access to their cash.”
What is a LISA?
A LISA is a savings account for young people – anyone aged between 18 and 39 can open one.
It is designed to be used to buy a first home or for later life, with savers able to add £4,000 maximum to an account each year.
For each amount you add to the account, the Government gives you a free 25% top up. So if you had £4,000 in there, you would get a £1,000 bonus.
Plus, you earn tax-free interest on whatever you save.
The bonus is paid every year you save something into your LISA, until you hit 50-years-old.
The maximum bonus you could get, if you opened an account at 18, added £4,000 a year, then withdrew the cash aged 50, is £33,000.
You can withdraw money from your LISA if you’re buying your first home, aged 60 or over, or terminally ill with less than 12 months to live.
However, as it stands, you have to pay a withdrawal charge of 25% if you take money out for any other reason.
This includes if you buy a home worth £450,000 or more.
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In other news, one couple revealed how they saved for their first home by opening a Help to Buy ISA.
Plus, The Sun spoke to one family that used the snowball method to clear £26,000 worth of debt and buy their first home.
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