Martin Lewis urges Government to fix 'broken brittle' ISA product with fresh incentive

Martin Lewis has urged the Government to fix a "brilliant, brittle and broken product" ISA product which is used by many Brits to save money. The Money Saving Expert suggested that the upcoming budget in November holds a perfect chance for the Government to address the “serious holes” in the Lifetime ISA (LISA).

LISA is an individual saving account that allows individuals aged between 18 and 39 to save up to £4,000 annually, with a 25% bonus if used towards purchasing a "qualifying" home. However, you may face a charge of 6.25% if the property exceeds the value of £450,000. In June this year, the Treasury Select Committee, which is made up of a cross-party group of MPs published a report also urging for LISA reform.

Earlier this week, the Government responded to the Treasury Select Committee's and said it believes the withdrawal charge "ensures that the LISA has been used for its intended purposes: homeownership for first-time buyers or later life savings".

It added that the £450,000 property price cap "supports most first-time buyers across the UK, including those households who may find it difficult to get onto the property ladder".

Speaking on BBC 5 Live this week, Mr Lewis spoke about the need to refine the LISA regulations and how the Government can still fix it.

He said: "In my view, Lifetime ISAs are a brilliant, brittle, and broken product. Let's start with the basics: a Lifetime ISA is a product you can open aged 18 to 39. When you save in it – you can put up to £4,000 a year in it – if you use it to buy a qualifying first-time property, you get a bonus of 25 percent.

"That's £1,000 a year free money, or state-funded money, that you get towards your first-time deposit. If it works for you, it's unbeatable and brilliant."

He said that there was a "real problem" with the requirement to purchase a property under £450,000 being manageable in much of the country, but in the south-east, it posed a "struggle" for some buyers.

On the radio, Mr Lewis highlighted issues arising when someone buys a home worth more than £450,000. He explained: "You don't get back all your money, never mind not getting the bonus. Now, I think that is a perverse incentive. It puts people off from saving in the first place, even people it won't affect, because they are scared of that withdrawal penalty."

He argued that as long as the savings are used to buy a first-time property, there shouldn't be a charge, no matter the cost. The finance expert stressed the importance for young people opening a LISA to fully understand its workings.

He continued: "It could be really lucrative – I've had so many people who've had £1,000s on the Lifetime ISA. You know, two of them have saved together for three or four years, and have got £3,000 or £4,000 each towards their first-time deposit – great.

"I've also had loads of complaints from people who've been absolutely stuffed by it, and it seems to me if we're going to have a product like that, we should make sure it's working."

In a statement on the matter released last week, a report by Government minister Emma Reynolds MP noted: "As of 2023/24, there were over 1.3 million LISA accounts open and, since its introduction in 2017, the LISA has helped 227,600 people purchase their first property.

"To ensure the product is well targeted, the property price cap (£450,000) supports most first-time buyers across the UK, including those households who may find it difficult to get onto the property ladder, which the Committee's report has acknowledged.

"In addition, the withdrawal charge ensures that the LISA has been used for its intended purposes: homeownership for first time buyers or later life savings."