“Unfair” penalties around schemes designed to support first-time buyers should be overhauled, according to bodies representing savings providers.
Lifetime Isas (Lisas) and Help to Buy Isas (HTB Isas) have helped many first-time buyers on to the property ladder but they must be updated and regularly reviewed to ensure they remain relevant, the Building Societies Association (BSA) and The Investing and Saving Alliance (TISA) said.
They made the calls ahead of Chancellor Jeremy Hunt’s spring budget on March 6.
The BSA and TISA said a withdrawal penalty on Lifetime Isas should be reduced.
Currently, if a Lisa saver buys a home above the Lisa property price limit of £450,000, or if they need to access their savings for any reason other than to buy a home, they pay a penalty withdrawal fee of 25%.
This can result in them not only forfeiting the Government bonus that comes with Lisas but also a chunk of their own savings too, the BSA and TISA said.
They said reducing the Lisa penalty withdrawal fee to 20% would allow savers to retain their own savings while still forfeiting the bonus.
The bodies also called for Lisa and HTB Isa property price thresholds to be increased and equalised, to reach £550,000. The thresholds should also be reviewed annually, they said.
Robin Fieth, chief executive of the BSA, said: “The budget on 6 March is a great opportunity for the Chancellor to make small changes that would have a big impact for would-be first-time homebuyers.
“The change to the withdrawal penalty that we are calling for was introduced on a temporary basis during the Covid pandemic and provided much-needed support to consumers in that difficult time.
“That shows it can be done. I would urge the Chancellor to reintroduce this on a permanent basis, ensuring the spirit of these savings schemes, which is to encourage young people to start saving to buy their first home, remains intact.”
Carol Knight, chief executive officer at TISA, said: “The current Lisa framework needs to better serve savers.”
A Treasury spokesperson said: “The Lifetime Isa helped over 56,000 people get on the property ladder last year and while the average price of a first-time home has increased, it remains below the cap across the vast majority of the country.
“As ever, we keep all aspects of the savings rules, including the Lisa, under review.”