Martin Lewis has welcomed the government's reduction of the Lifetime ISA (LISA) withdrawal penalty for first-time buyers purchasing homes above £450,000, a change he says he "campaigned for years" to achieve. Chancellor John Healey confirmed the move in last week's Budget.
Previously, savers using a LISA to buy a home over the price cap, or withdrawing early for any other reason, faced a 25% penalty. The £450,000 cap had not risen since the LISA was launched in 2017, and Lewis had long argued the system unfairly penalised young buyers as house prices climbed.
What has changed for LISA savers?
In his Budget, Mr Healey confirmed the penalty for buying a home over £450,000 has been reduced. He said: "From today I'm dealing with the LISA penalty, so that if the home you want costs more than the limit, you will get back at least what you put in."
The withdrawal charge has been cut from 25% to 20%. According to the Money Saving Expert website, the previous 25% charge meant people withdrawing for reasons other than buying a qualifying first home got back 6.25% less than they put in. The reduced charge recovers the government bonus while allowing savers to "get back what you put in".
Martin Lewis's reaction
Lewis said: "My issue has been that first-time buyers who saved in LISAs just as the state encouraged them to, but who then got priced out of the market - because the £450,000 maximum hasn't increased since the LISA's 2017 launch - were outrageously forced to pay the state what feels like a 6.25% fine to access their money in the way the state intended.
"But, since last Thursday, for those buying properties over £450,000, the penalty is reduced to 20%, so you get back what you put in, plus interest, you just don't get the bonus."
First Time Buyer ISA to replace LISA
From April 6 2029, LISAs will close to new applicants. The government has introduced a new First Time Buyer ISA that will help buyers of all ages, with no age limit compared to the current LISA's 18-39 range.
A government bonus will be paid at the point an individual makes a withdrawal for purchasing their first home. This removes the need for a withdrawal charge and means a saver can withdraw funds, should their circumstances change, without penalty. Savers will be able to put up to a certain limit a year into the FTB ISA, which counts towards their ISA allowance, and it can be used for any home in the UK valued up to a set price cap and purchased with a legal mortgage.
In his Budget, Mr Healey said: "For every young person who's working hard, saving what they can, and dreaming of their first home, I'm taking action. I'm announcing that a First-Time Buyer ISA will replace the Lifetime ISA."
