"With rising house prices and ongoing affordability issues, the Lifetime ISA risks being left behind, which is particularly troubling given the number of savers who are reliant on it to build a sufficient deposit"
- Chris Storey - Atom bank
New research from Atom bank has revealed that nearly all Lifetime ISA (LISA) holders rely on the 25% government bonus to help them purchase a home, with many calling for reforms to make the scheme more effective.
According to the findings, 98% of savers intending to use their LISA for a home purchase reported being in some way dependent on the annual bonus, and 46% said they were “very reliant” on it.
47% of those surveyed believe the £4,000 annual contribution limit for a LISA is too low and should be increased. A majority of respondents (59%) also expressed support for lowering or removing the early withdrawal penalty, which currently stands at 25% for savers who take money out for reasons other than buying a home or retirement.
20% respondents said they hold a Lifetime ISA. By comparison, 80% have a Cash ISA and 34% have a Stocks & Shares ISA.
The study comes amid recent speculation over possible cuts to Cash ISA allowances, though pushback from savers and providers has reportedly delayed any such announcements from the Chancellor.
The Lifetime ISA allows individuals to save up to £4,000 annually within an overall £20,000 ISA allowance, and receive a 25% government bonus worth up to £1,000 each year. The bonus is forfeited, along with an additional penalty, if funds are withdrawn for purposes other than a first home or retirement.
Survey results showed that over a third of respondents (36%) believe the 25% early withdrawal charge should be reduced, while 23% think it should be scrapped altogether.
The research suggests that many aspiring homeowners see the LISA as a critical savings tool and hope upcoming ISA reforms will strengthen, rather than scale back, the product.
“Reforms of the Lifetime ISA are long overdue," stated Chris Storey, chief commercial officer at Atom bank. "With rising house prices and ongoing affordability issues, the Lifetime ISA risks being left behind, which is particularly troubling given the number of savers who are reliant on it to build a sufficient deposit."
He added: “At a time when many are struggling to save and get on the property ladder, we should be developing products that make it easier for people to grow their hard-earned savings and buy homes. This is a key part of encouraging economic growth and prosperity.
“The fact that some first-time buyers could be penalised for accessing their Lifetime ISA has been well documented, so hopefully areas like the £450,000 limit are addressed as part of the broader conversation on ISA reforms in the coming months.”
