LISA0064

Written evidence submitted by Anonymous

I am a 27 year old woman living in Epsom. I was born here and my support system is based in London and the South East. I am submitting this evidence as a plea to the government to protect my savings and help me and those in similar situations save for their futures. I opened my Lifetime ISA as a way to save for buying my first home. I believe the system is great for encouraging people to save money, learn financial literacy, create a fund for themselves so they may financially independent from others, and give them a genuine opportunity to own a home. However, I no longer believe the LISA is fit for purpose in its current design. To improve the LISA I believe that either the house price cap should be increased, or the penalty for withdrawal should be removed entirely. The best outcome would be for both of those outcomes to be enacted.

Many critics argue the LISA is not suitable for saving for your pension, and I doubt many open a LISA for this purpose. There are more beneficial and economical ways to save for a pension. I personally use the LISA to save for a first home and believe this is the main reason the majority of others have opened theirs. Unfortunately, due to rising house and flat costs, the LISA is now not suitable for anyone living in London or the South East. I cannot speak on behalf of other areas in the country but imagine others who live in or near large cities also find this a struggle.

The rules of the LISA mean you can only use your savings on a home worth £450k or less. This is starting to become incredibly difficult to find in my area. I do not believe young people should be forced to leave the areas they were born and grew up in, in order to use their hard earned savings to buy a home. To have such a harsh penalty for withdrawing the money on a home worth more than £450k is devastating. It makes perfect sense to disallow the bonus of 25%, but to then also take money away from the original savings is appalling. Young people are being penalised for working hard and saving money, all because the government has so far refused to raise the house price cap in line with inflation or house rates.

I am extremely anxious, as are my peers, about finding a suitable home that meets the government’s guidelines. Many first time homes are often fixer-uppers, that is often the way of it. However house prices in London and the South East are now so extortionate that first time buyers will be paying huge amounts for small, low quality housing, in order to meet the LISA requirements and yet still have to spend a lot of money fixing up their homes, which they undoubtedly do not have. I do not understand why the penalty for withdrawal is so high and takes money away from  the initial savings, and that first time buyers are being punished for living in an area where home prices are so high. It is beneficial to society for communities to be built and for people to be close to friends and family, and other support networks. The rising house prices are forcing many vulnerable people away from their communities and families in order to find a suitable place to live and spend their LISA savings. This has knock on affects on birth rates as people do not have the family and friends close by to support them in raising a child. It affects mental health as people become more ill and isolated without their support network. This, of course, has a knock on affect on the NHS, which is already entirely overwhelmed and unable to support all of those with poor mental health.

These LISA requirements are forcing communities apart and creating a more isolated society. When the government began this scheme they enticed people to join and encouraged them to save their money into LISAs to help their future. What we find now, is that many are trapped in a scheme that will penalise them and are at risk of losing their hard earned savings. If the house price cap is raised, this will allow for many to buy their first home in the areas where they grew up in, maintaining healthy relationships and becoming part of the housing ladder. Removing the penalty altogether would allow those who cannot find a home under £450k, to withdraw their funds and make new financial decisions on how best to save for their first home, without losing money they worked hard for and could have put into a more appropriate savings scheme (had they known). It would also mean that those in areas with lower house prices, can still benefit from the government’s initial plan and receive the 25% bonus.

The LISA in it’s current design is not fit for purpose. It may lead to people making poor choices as they feel forced to buy their homes before house prices increase even more, which may trap many into financial agreements with partners who are abusive. The LISA feels like a ticking time bomb where, if you don’t buy soon, house prices will rise above the cap and it will become a pointless scheme, trapping thousands of pounds of people’s savings in an ISA which they cannot even use, and worse, will be penalised for if they try to access their money.

It seems to me a win-win situation for the government to remove the penalty or increase the cap. People will continue to buy into LISAs and will feel more secure in their future. There will be more trust in the government and belief that it is doing things for the public interest, and not just their own gain. If nothing is done to change the design of the LISA, then shame on the government for deciding to continue making a profit off of those they trapped in a scheme who were only trying to save for their futures.

January 2025