LISA0192

Written evidence submitted by West Brom Building Society

About West Brom Building Society

Established in 1849, West Brom Building Society is a mutual organisation that offers savings accounts and mortgages to over 400,000 members. We specialise in supporting first-time buyers, particularly those who are underserved and who may face barriers to securing a mortgage. As a mutual organisation, we are owned by our members, and we prioritise and support their financial wellbeing.

As part of that support, we are actively engaged with our local community. In 2024 we reached 1,640 students in financial education sessions across 29 different settings. We were the first Building Society to partner with Plain Numbers, a charity that enables the clear communication of numbers, so that people can better understand the choices they face in life. Last year, we also supported 83 charities through charitable giving and volunteering hours.

Executive Summary

West Brom Building Society welcomes the opportunity to contribute to this inquiry on the future of the Lifetime ISA. We support the Government’s aims for the LISA, in particular to help first-time buyers save for a deposit. But the challenges many people face in buying their first property have been perpetuated by the UK’s cost-of-living crisis, which is why we welcome initiatives that help people overcome these challenges.

We believe our rich experience in savings and mortgage lending, with a particular focus on supporting first time buyers to purchase their first home, provides valuable insights for the committee’s consideration.

Background on first time buyer lending

Supporting first time buyers to access the housing market is at the heart of why we exist. We offer a range of solutions tailored to those with specialist lending needs, such as individuals with a limited credit history, lower deposits or modest incomes. This is why we offer shared ownership schemes, low-deposit mortgages and options for new build properties, with deposits starting as low as 5%.

Reaching underserved customers is a key priority for us, and this commitment is central to our mission and values. Our approach to underwriting means we often support customers who through life circumstances might have credit blemishes. For example, recently we supported a customer who faced losing out on the property they were purchasing, after their initial mortgage offer was unexpectedly withdrawn due to an IVA in their credit history. Once we looked at the individual circumstances that led to the customer’s previous difficulties, we were able to offer them a mortgage, ensuring they didn’t lose out on their house purchase. We also don’t charge arrears fees for customers who get into difficulty with their mortgage payment, thus helping enable them to get back on their feet as quickly as possible. These examples reflect our dedication to making homeownership achievable and sustainable for those who may be overlooked by traditional lenders.

Our commitment to supporting this sector of the market was highlighted in our half year results published in November 2024, in which we reported record levels of homeowner lending in the first half of the financial year, with mortgages to first time buyers increasing by 39%, exceeding market growth of 24%1. Therefore, first-time buyers made up 66% of all new mortgage customers with the society, helping over 3,000 customers purchase their first home (in the first half of the financial year).

With our mission being to support first-time buyers in achieving homeownership, we are therefore submitting evidence to the Treasury Select Committee, to help highlight the vital role the Lifetime ISA could play in making homeownership more accessible. 

Saving for a deposit and the Lifetime ISA

Currently, we’re focusing on ways to support first time buyers who find themselves stuck in the challenging cycle of paying rent while trying to save for a deposit. With research showing that under 45’s now account for 66% of all rent paid in Great Britain2, it’s clear this group faces significant hurdles. That’s why we’re committed to championing solutions like the Lifetime ISA, which offers a bonus to boost savings and make homeownership a more achievable goal.

We agree that the Lifetime ISA should undergo the reforms recommended by the Building Society Association (BSA). This includes removing the £450,000 cap of the value of the property purchased, and reducing the penalty for early withdrawal from 25% to 20% to ensure the saver does not lose their hard-earned money.

Adverse effects of the early withdrawal penalty

We believe the early withdrawal penalty unfairly impacts savers who may face significant life events and need to access their savings without losing the money they put into the account. This issue affects a broad range of people, including those on lower incomes, individuals dealing with unexpected health challenges, or those experiencing major life changes like unemployment or family difficulties. Penalising people for accessing their savings during times of crisis, when they are at their most vulnerable, is unfairly punitive. That’s why we support reducing the penalty to a maximum of 20%, ensuring savers retain their initial deposits and are only impacted by the loss of any bonus they would not otherwise receive.

Impact of Lifetime ISA on deposits and first time buyer affordability

Recent research highlights the positive impact of the Lifetime ISA in helping many first-time buyers save for a deposit, offering a crucial pathway to making the savings required to purchase a home. According to HMRC figures3, the average amount paid into a Lifetime ISA in 2023-2024 was £2,478 with 56,900 individuals using their Lifetime ISA to buy a home – an annual increase of 1,150 compared to the previous year.

Our own internal data shows that between 2020 and 2024, our customers purchasing their first home with a West Brom Building Society mortgage with a 20% deposit paid an average of £46,368, while in Greater London this increased to £88,632. Meanwhile, the BSA recently reported even higher national figures, citing a typical deposit for first-time buyers now costing £60,000 across the UK and £144,000 in London4.

These figures highlight the significant financial hurdle that a deposit represents, particularly for average earners and lower-income families who must balance saving for a home whilst managing rental payments. Many prospective buyers do not have the advantage of financial support from family gifts or inheritance, thus making it even more challenging to accumulate the necessary funds. This highlights the vital role of savings products like the Lifetime ISA, which, with its government bonus, provides much-needed support to first time buyers.

Furthermore, with a challenging economy and a high cost of living, many first-time buyers are finding that affordability is tight, the difference between a mortgage payment with a 10% and 20% deposit is sizeable. Recent figures suggest a mortgage with a 10% deposit would account for 50% of an average earner’s income and 36% of income with a 20% deposit.5 That’s why we support the BSA’s view that the Lifetime ISA cap should be raised from £4,000 per year, to enable first-time buyers to maximise savings for their deposit.

Reforming the Lifetime ISA

As noted in this feedback, we share the BSA’s view that there are areas where reforms could enhance the Lifetime ISA’s effectiveness. We agree that the proposed changes are designed to offer greater value to savers, better reflect current market conditions, and help individuals achieve their financial aspirations, particularly in homeownership, and we urge the committee to consider these reforms.

As a building society that does not currently offer the Lifetime ISA, we would be more inclined to do so if the product were structured more fairly for customers, with fewer restrictions and improved value. In the 2023/24 tax year, HMRC declared that savers were fined approximately £15 million of their own money when withdrawing funds from their LISA6 – the largest annual amount recorded since LISAs were launched, and up by more than 50% from the previous year.

Although it’s not clear why savers are withdrawing funds, we know that external pressures such as the cost of living are a contributing factor. We also know that the rise in house prices in London and the southeast means some savers will have purchased properties over the £450,000 threshold - resulting in the withdrawal penalty. This was highlighted in survey data from Moneybox - a LISA provider - who found, nearly one in ten, (12%) of LISA savers paid the withdrawal penalty (in February 2023), to buy a home over the £450,000 limit6. This equated to an estimated £1.8 million paid in penalties for using the LISA for its intended purpose of buying a house.

Conclusion

Currently, there are only seven Lifetime ISA’s available on the market7, indicating that we are not alone in our current position. The most competitive rate stands at 5%, followed closely by 4.8%. However, the remaining five rates fall below 3.6%, much less attractive options. An increase in providers entering the market would offer customers greater choice, increase competition and lead to better outcomes for consumers.

We believe that ensuring savers are not at risk of losing their own money due to punitive withdrawal penalties would make the Lifetime ISA a much more attractive option. With the reforms proposed by the BSA implemented, we believe the LISA could drive positive change, encouraging more providers like us to offer it. This would ultimately benefit customers by increasing choice and widening access to homeownership.

Footnotes:

1UK Finance mortgage completion reporting for September tables BTL22, S1 final.

2Source – English Housing Survey in: Under 45s' rent bill hits record levels in 2024 | Property Reporter

3HMRC figures: Annual savings statistics 2024 - GOV.UK

4https://www.bsa.org.uk/getmedia/979107ee-ad11-4bb8-ad1c-7e15cf0574fc/BSA-First-Time-Buyers-Report-2024-(Interactive-Single-Page)-(1)_1.pdf

5 Robert Gardner, Chief Economist @ Nationwide (bio here). Episode: https://www.bbc.co.uk/sounds/play/m0027d37. Discussion starts at 1:20:05. 

6 Moneysavingexpert.com – Lifetime ISA fines costing first time buyers.

https://www.moneysavingexpert.com/news/2024/09/lifetime-isa-fines-costing-first-time-buyers/

7 Lifetime ISA | Full Guide & Best Rates | January 2025

January 2025