Is the lifetime Isa no longer fit for purpose?

London: The Lifetime ISA was introduced to help people save for their first home or retirement. But it seems like it might not be cutting it anymore. The property price cap has been stuck at £450,000 since 2017, even though house prices have shot up by over a third since then. That’s a real problem for many folks trying to get on the property ladder.

The scheme has been popular, especially with younger generations, thanks to the government’s bonus of up to £32,000. But there’s a catch. If you want to buy a home that costs more than the cap, you face a hefty penalty. Martin Lewis, a well-known consumer advocate, has been vocal about the need for changes.

Recently, a committee of MPs has jumped into the conversation, questioning if the Lifetime ISA is still doing its job. They’re looking into whether it needs a makeover or if it should be scrapped altogether.

Since its launch in 2016, the number of Lifetime ISA accounts has surged, with over 755,000 active accounts as of last year. Many people have successfully used their savings to buy homes, but the outdated price cap is causing headaches.

In some areas, even a basic flat can cost more than £450,000, making it tough for savers. If they withdraw money for a property above that limit, they face a 25% charge, which can eat into their savings. For example, if someone has £25,000 saved, they could end up with less than they put in if they buy a pricier home.

Lewis argues that the scheme is “broken” but fixable. He suggests lowering the penalty and raising the price cap to reflect current market conditions. Dame Meg Hillier, chair of the Treasury committee, agrees that the Lifetime ISA might not be serving its purpose anymore.

The committee plans to gather opinions from various stakeholders to see what changes could be made. Hillier believes that while the idea behind the Lifetime ISA is good, it might be time for an update to better serve those saving for their first home or retirement. They want to find out if consumers have better options available now.