LISA0007

Written evidence submitted by Anonymous

 

I am a 38-year-old, solicitor living and working in Central London. I believe my experience with the Lifetime ISA makes me a good example of the extreme situations they can and have led to, whether one is for or against their use and the application of taxpayer’s money to fund them.

I opened a Help to Buy ISA in early 2016, when I was a trainee solicitor, aged 29. On qualification later that year, I started a new job in Leeds. I transferred my Help to Buy ISA into a Lifetime ISA in May 2017. I have contributed £4,000 into it every year since. At the time of transfer, it seemed inconceivable to me that my first property purchase could ever exceed £450,000. I was on a good salary, made significant savings, and expected to buy property within two further years, probably costing no more than £200,000 (above the average house value in Leeds at that time). However, I lost my job in Leeds, and then moved to Oxford in November 2017, where property prices were much more expensive and my salary relative to local property prices was lower. I then expected to purchase my first property in 2020, given how steeply property prices were increasing in value. When the Covid-19 pandemic hit, my employer closed its office in Oxford and moved me and my colleagues nominally to Bristol, while we continued to primarily work from home. I paused my property search while I waited to see what happened and where I would need to be based, and moved in with my parents to save money. Just as my employer began to mandate returns to the office, I then negotiated an internal move to my firm’s London office in April 2022 and moved there.

I am currently looking to purchase my first property in 2025. I have contributed £32,000 into my Lifetime ISA and received £8,000 from the government. With my current level of savings and income (about top 2% in the UK, lower for London), my maximum affordability now would be about £800,000, although the amount I would be comfortable paying for property would be around £600,000 – £700,000.

On the one hand, the government could take the view that the Lifetime ISA was never meant for people in my financial position, or if it had been suitable for me initially, it no longer is, or that I should have surrendered or stopped contributing to it perhaps when I moved to Oxford. On the other hand, it isn’t the fault of me or other Lifetime ISA owners that property values have increased over the last 8 years considerably faster than we can save for our first property purchase. The £450,000 cap should always have been flexible and a function of property values. It arguably was too high initially, but now is far too low. At my age and having worked for my entire adult life, I feel it would be fair for me to be looking for a property on the second rung of the property ladder (a family home), not the first rung, but only starter homes are available in Central London within the £450,000 limit. When I talk to solicitors 20 years older than me, many of them had or were purchasing large houses at my age, the sort of properties that are now worth £2 million plus. There is a very wide discrepancy between our generations in terms of our living standards at the same age, and the discrepancy is only getting worse for the next generation.

While I can understand arguments that the LISA should be abolished because it is too blunt an instrument to benefit first time buyers, the regime for those already with LISAs should be revised so as to minimally prejudice those who still have them. I believe the following revisions should be introduced:

  1. The £450,000 cap should be increased to £500,000 for property purchases falling within certain areas, for example within Zone 3 in London. This would benefit people who live in a high cost of living area. It would also help the London property market recover. It has been underperforming the rest of the country for a few years. The £450,000 cap has contributed to this, keeping a lot of properties at around that level for the last few years. The cap could be revised in more nuanced ways, for example it could be increased by £25,000 in Zones 4 and 5 and central areas in Bristol, Oxford, Cambridge, and other relevant locations where property is disproportionately expensive. The cap could be benchmarked to the average salary to average property price ratio. The cap could even be reduced in some areas where property prices are very low, such as in northern England, where taxpayers should not be subsidising people who can afford £450,000 properties, who could easily afford to purchase starter homes.

 

  1. The cap should be increased on a case by case basis, by £10,000 for every year a Lifetime ISA has been open over 3 years. This would help those people, like me, whose circumstances changed over time and did not foresee property prices rising so quickly while they were saving for their first home, but it would not act as an incentive for people to keep their Lifetime ISAs for longer and put off property ownership. The market increases faster than this proposed revision to the cap. This proposal would simply help to mitigate some of the damage caused by waiting longer to make a first purchase.

 

  1. If two people are purchasing a property together and they are both first time buyers, they should be able to spend up to another £50,000 if purchasing using one or two Lifetime ISAs. This would benefit families of my generation who are struggling for space and it would incentivise young couples to have children, knowing they would have more scope to purchase a family home to accommodate them.

 

  1. The 25% charge for surrendering the Lifetime ISA should be removed, since it serves no real purpose to punish people who aspired (or “over-aspired”) to be homeowners. It should be 20%. Additionally, I believe that the Government should compensate the additional 5% between 20% and 25% to all those that have already surrendered their Lifetime ISAs.

The above changes would allow me and people like me to purchase property of £550,000 in Central London, or £600,000 if I was purchasing with a partner. Even with those add-ons, this is still less than the ratio that property prices have increased by since the Lifetime ISA was introduced. The scheme could be closed to new applications and contributions altogether, but in successive years the cap could be modestly revised further for those still within the scheme.

 

January 2025