Money-saving expert Martin Lewis claimed people with Lifetime ISAs could be at risk of being locked-out of their accounts.
In a new blog for Money Saving Expert, the money guru said some people could even be at risk of having to cough up a £1,000 fine to get their money back.
The new report from MoneySavingExpert (MSE) – which was sent to the Treasury and the Financial Conduct Authority – has urged the Government to alter the outdated thresholds linked to Lifetime ISAs (LISAs).
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If you open a LISA it enables first-time buyers between the ages of 18 and 39 to save up to £4,000 a year.
They will also get a 25% boost when the cash is used for buying a new home.
It can lead to a bonus of up to £1,000 a year, which gets added to the individual’s savings and interest.
(Image: ITV)
Since it was launched half a million people have used such accounts to save money.
But since 2017 LISA’s maximum eligible property value hasn’t jumped from £450,000, even though the average price of property in the UK has increased by 35% during this time.
If the threshold had increased it would now stand at £607,500.
People saving in order to buy property that no longer qualify now have to cough up around a 6.25% penalty to get their money out.
If someone has managed to save £20,000, and has maxed a LISA out for five years, then they may have to hand over as much as £1,250.
Some people who held accounts withdrew money for reasons that didn’t relate to buying a new home between April 2017 and April 2022, which led to forfeiting £9.5 million of their hard-earned cash in penalties.
Some have even done it in order to snap up a property that fell above the threshold.
Money Saving Expert reported some first-time buyers have told them about their “heartbreak” and “sleepless nights” after being charged to try and access the money they’ve worked so hard to save.
Some have even had to try and make up the loss to buy their own properties.
(Image: Getty Images/iStockphoto)
Martin Lewis, founder of MoneySavingExpert.com, said: “This isn’t about pumping the housing market – this is about fairness to about half a million younger people the state sold a savings scheme to, that for some of them is now a dud. If a private firm had done this, it’d be getting close to mis-selling.
“Savers had a legitimate expectation that – over six years, amid huge house price inflation – under a fair system there would have been some uprating to the maximum house purchase limit.
“Without it, a chunk face being priced out, having to spend more on a property, and then having to pay the state a fine to access the money they’d put aside for a deposit.
“Then, to take the biscuit, the fact they then have a reduced deposit can decrease the value of the mortgage they will be accepted for.
“The changes we’re asking for – either ditching the fine for those buying houses that no longer qualify or increasing the threshold, or both – are simple, easy to put into practice and would cost a relatively small amount in Government terms.”
If the money isn’t used to purchase a house, LISA funds can only be accessed penalty-free when the saver reaches the age of 60.
Then they are able to make full or partial withdrawals, which will also be tax-free.
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