MARTIN Lewis is warning households over a bank account that could cause them to lose more than £1,000 in cash.
The founder of MoneySavingExpert (MSE) is urging the government to update the rules for Lifetime ISAs (LISAs).
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Opening a Lisa allows first-time buyers aged 18 to 39 to save up to £4,000 a year, then get a 25% boost when they’re used for buy a home.
This can result in a £1,000 a year bonus on top of savings and interest.
But the Lisa’s maximum eligible property value hasn’t increased form £450,000 since it launched in 2017.
This is despite the average UK property prices rising by 35% in that time.
If the threshold had rise, it, would now by £607,500, according to MSE.
It means savers buying a home that no longer qualifies effectively pay a 6.25% penalty to get their money out.
155,600 LISA savers withdrew money for reasons other than to buy a qualifying first home between April 2017 and April 2022, forfeiting £9.5 million of their own cash in penalties.
MSE say many may have done it in order to use the money to buy a home above the threshold.
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Martin Lewis and MSE are now calling on the government to allow savers using Lisa money to buy a home that’s now over the limit, without having to pay a penalty.
The consumer champion is also asking for the £450,000 limit to be raised to £607,500 to catch up with house price growth.
Martin Lewis said: “Savers had a legitimate expectation that – over six years, amid huge house price inflation – under a fair system there would have been some uprating to the maximum house purchase limit.
“Without it, a chunk face being priced out, having to spend more on a property, and then having to pay the state a fine to access the money they’d put aside for a deposit.
“Then, to take the biscuit, the fact they then have a reduced deposit can decrease the value of the mortgage they will be accepted for.”
What’s a lifetime Isa?
The Lifetime Individual Savings Account was introduced in April 2017 as a way of helping first-time buyers save for a home, and providing a more easy-access way to save for retirement.
You can save up to £4,000 a year into a Lisa and you’ll get a government bonus of 25% on what you put in.
That means if you put in the maximum £4,000, you’ll get a £1,000 free cash bonus.
If you save the maximum amount between the ages of 18 and 50 you could get as much as £32,000 for free.
You’ll also earn tax-free interest on your savings pot, including on the added extra from the government.
Lisa accounts are open to anyone aged 18 to 39 and you can keep saving in one until you are 50-years-old.
If you opened a Lisa at age 18 and saved the maximum amount for 32 years you’d get £32,000 of free government cash.
With a Lisa, you can buy homes worth up to £450,000 in London and £250,000 outside London.
However, you’ll be charged a 25% fee on the amount withdrawn – including the bonus – if you want to use it for something other than its specific purposes or if you buy a home above the threshold.
What other government schemes can help first-time buyers?
Shared ownership
Shared ownership lets first-time buyers purchase a portion of the equity in a property if they can’t afford to take out a mortgage for the total value of the home.
You’ll co-own your home with a housing association, which will charge you rent on its portion of the property.
Buyers will find they’ll likely need to buy a new-build home.
Buyers must purchase between 10% and 75% of the property to use the initiative, and they can then “staircase” – buy more shares in instalments – until they own 100% of it.
You can put down a deposit of just 5% using a shared ownership scheme.
While it can make buying a home more affordable, there are a few disadvantages.
You don’t have as much freedom when it comes to selling up – if you own less than 100%, your housing association will get a set period of time to find a buyer.
That means you won’t be able to accept a higher offer from someone else.
Or, you might have to sell it back to the housing association instead of putting it on the market.
There are also fewer lenders offering shared ownership mortgages compared with standard ones.
This means there isn’t much competition to offer decent rates.
Help to Build
The Help to Build scheme is designed to help first-time buyers.
You’ll be able to build your own home with just a 5% deposit.
The government can give you an equity loan based on the estimated costs to buy the plot of land and build your home.
The loan amount can be between 5% to 20%, and up to 40% in London.
It will make building your own home more affordable, as currently, you’ll need a deposit worth around 25% of land and building costs.
With a home costing £400,000 to build, you would need to raise £100,000 typically. At 5%, this would be just £20,000.
But there are some downsides.
Building costs can often run away – which means you could go over budget and end up forking out much more than you want to.
It could also be challenging finding land to buy and build on – including the faff of getting planning and a mortgage.
Right to Buy
This scheme is aimed at council house or housing association tenants in England or Northern Ireland and allows them to buy their home at a discount.
The discount is worth £87,200 or £116,200 in London.
You can only apply to buy your home under certain criteria though.
It has to be your only or main home, it must be self-contained, you need to be a “secure tenant” and you must have had a public sector landlord for three years.
A secure tenant is someone who has lifetime tenancy over a property.
One thing to bear in mind though is that you have to stay in your property for a minimum of five years after buying it.
Check out if you’re eligible and how to apply from gov.uk.
The First Homes scheme
The First Homes scheme was launched last year and means prospective first time buyers in England can get homes at a 30% to 50% discounted rate compared to market price.
But, if the homeowner decides to sell the property down the line, the discount on the new value will be made available to any future buyer too.
As well as being a first time buyer, you also have to be 18 or older, and able to get a mortgage for at least half the price of the home.
You also must be buying the home as part of a household with a total income of no more than £80,000, or £90,000 in London.
But this scheme is limited to certain areas with 1,5000 of these homes being rolled out in 100 locations over the next two years.
More are expected to become available as housebuilders and local authorities add the scheme into their plans to build new homes.
You can find out more about the First Home Scheme from gov.uk, including how to apply.
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