Money-saving expert Martin Lewis has offered crucial guidance to first-time buyers wondering whether to continue paying into a Lifetime ISA (LISA). His advice follows Chancellor Rachel Reeves' announcement of a new consultation on the savings product in the recent Budget.
What is a Lifetime ISA and What's the Problem?
The Lifetime ISA is a government-backed savings account designed to help people get on the property ladder or save for retirement. For every £4 you save, up to £4,000 per tax year, the state adds a 25% bonus. This means savers can gain a maximum of £1,000 in free cash from the government each year.
However, the scheme has two major flaws that Martin Lewis has long campaigned to change. Firstly, if you withdraw money for any reason other than buying your first home or retirement, you face a hefty 25% penalty. This charge applies to the total pot, not just the bonus, so it can eat into your original savings.
Secondly, the property price cap of £450,000 has been frozen since the LISA launched in 2017. With house prices soaring, this limit is now particularly problematic for buyers in high-cost areas like London and the South East, where average prices frequently exceed this threshold.
The Chancellor's Stance and Lewis's Personal View
Following the Budget, Martin Lewis directly questioned Chancellor Rachel Reeves about potential changes. While the Chancellor confirmed the consultation would review the property price limit and protections for existing savers, she stopped short of advising whether people should keep contributing now.
Reeves stated: "We'll crack on with this consultation and make sure that the new product works better than the one it's going to be replacing. But I would encourage people, if you've got money in a LISA at the moment; nothing is changing."
With no definitive answer from government, Lewis provided his own clear, personal recommendations based on individual circumstances:
- For those buying a sub-£450,000 home soon: "If you're going to be buying a house under £450,000 in the next three or four years, I would absolutely, certainly, be opening and putting my money into a Lifetime ISA."
- For potential buyers in the South East: "If you think you might be buying a house in the South East where the price is over £450,000, I would be very cautious about putting a substantial chunk of my money in the cash ISA because of the penalty and we don't know what's happening to it."
- For retirement savers: He advised opening a LISA but being cautious about depositing large sums until the consultation's outcome is clear, though he suspects existing pension savings will be "fine".
What Happens Next for LISA Savers?
The future of the Lifetime ISA now hinges on the government's consultation, which will scrutinise the withdrawal penalty and the outdated property price limit. For millions of savers, this period creates uncertainty.
Martin Lewis's guidance underscores a careful, wait-and-see approach for those at risk of breaching the £450,000 cap, while actively encouraging others to harness the valuable 25% bonus if their purchase plans are secure. All eyes will now be on Westminster for the results of the review, which could reshape this key first-time buyer incentive.
