LISA0137

Written evidence submitted by Anonymous

As a subscriber to a LISA I am submitting evidence to this committee as I believe the LISA is long overdue reform. I have been a LISA subscriber since their inception with the intention of becoming a first-time buyer. I have kept my LISA savings in a cash LISA (rather than stocks and shares). This has been to reduce risk and have liquidity. My concerns with the LISA are poor interest rates, how it may be abolished, and the £450k house price limit.

Interest rates were low when the product was first introduced and funds had not built up. So a less competitive rate was less of a problem. As interest rates have increased, the bigger name providers have kept interest rates low. Skipton offers 2.8% despite their controlled access saver (one withdrawal per year) offering 4.4%. New providers, Moneybox and Tembo, have offered competitive rates, but some savers prefer bigger name providers, and these providers use multiple holding banks. Therefore, during the LISA’s lifetime, savers have had to accept lower interest rates in order to access the bonus. Providers (perhaps facilitated by rule changes) need to offer more competitive rates, which could include access restrictions such as a higher rate with only one withdrawal (in most cases when the account is used).

As for a pension, the product does give the advantage of better access than a workplace pension but no financial benefit due to the pension tax relief. However, as wages rise and the higher rate threshold stays unchanged, any benefits are lost. As a result I do not intend to use the LISA as a pension.

If the LISA is withdrawn I have two concerns, first, that it introduces a panic to buy (two savers buying together could have over £16,000 in bonuses), and savers have had to accept lower interest rates to access the bonus. The impact of course depends on how a withdrawal is implemented. At a minimum, I feel the government should pay the savers the equivalent fine that savers would have been subjected to, i.e. 15% removal of funds rather than 20%. This does not remove any panic to buy however as it could still mean losses of £10,000+. I feel this is also very unfair on savers because the bonus has already been paid into the savings accounts so it means the government would be taking money from a person’s account when they have not breached any of the terms. It would be a significant setback in saving for a house.

If the LISA is withdrawn and savers are allowed to keep the bonuses paid before the committee’s decision, it would not see many savers benefit unduly. Most first time buyers will go on to buy a house with the funds and most pension savers could have added money to a pension and received 20% tax relief.

I moved from a help to buy ISA to a LISA because in 2016 a £250k cap seemed possible to exceed and a £450k cap seemed impossible to exceed. Now 8/9 years on, significant house price increases, living in a more expensive part of the country and starting a family means that limit has almost been reached. Without a change to the cap, when and where we buy a house would be influenced by an almost decade old government figure. This could unnecessarily add a house move into our lives. Therefore, as a subscriber to a LISA I would ideally like to see the limit scrapped or at a minimum raised by inflation, as per Martin Lewis’s campaign. Although scrapping the limit would mean the government helps a small number of people buy very expensive first properties, they ultimately will still be buying their first home and have lost out to increasing property prices. Also, the majority will have paid income tax on the savings so it would essentially be a convoluted form of tax relief. Scrapping the limit would greatly simplify a complex product and allow for better long-term planning. The term Lifetime should mean you can use the product at the correct time for your life, which could mean purchasing a house much later in life when you are able to afford more.

Overall, as a subscriber to a LISA for many years, I feel the product is successful in ensuring good saving habits and helps first time buyers immensely. However, it is not without its problems. Bigger name providers should offer more competitive rates for their cash option, perhaps with access control. It is also a complex product that requires long-term planning that isn’t always possible. Therefore, it is my opinion that the £450k limit should be removed, to allow for long-term planning, or the LISA abolished with no funds taken from subscribers, to prevent any panic to buy and removal of savers’ funds.

I thank the committee for their interest in assessing these reforms.

February 2025