As the Chancellor prepares for his upcoming Budget, and possibly the last one before the nation is asked to go to the polls in a General Election, I’m sure his inbox is overflowing. Somewhere amongst all the ideas, suggestions and requests is a contribution from the BSA. Our plea is to make a few small tweaks to remove unfair penalties and outdated thresholds, that will have a big impact on first-time buyers and savers.
We all know that trying to take the first step onto the property ladder is a challenge for pretty much any new homebuyer, with our Property Tracker Report regularly showing that saving for the deposit is one of the biggest barriers to achieving the dream of homeownership. Lifetime ISAs (LISA) and Help to Buy ISAs (HTB ISA) are schemes introduced by this government to help tackle the problem of saving for those initial upfront costs. We must recognise that giving a 25% boost to the savings pot has already helped hundreds of thousands of first-time buyers onto the property ladder, for which the government should be applauded.
However, for any scheme to continue to be successful, it must be regularly reviewed to ensure it remains relevant for the market conditions of the day. HTB ISA was launched in 2015 and the LISA in 2017, and although the housing market has changed considerably in that time – most notably that house prices have increased by around 30% in the last 6 years – the scheme rules are the same as the day they were introduced.
The first critical change we have therefore asked the Chancellor to make is to increase and equalise the property price thresholds of LISAs and HTB ISAs.
It makes no sense at all that a lower threshold is applied to properties outside London for would-be first-time buyers who are saving in the HTB ISA (£250,000 outside London/£450,000 in London), whereas the threshold applied for those saving in a LISA (£450,000) is the same whichever part of the country the property is. These different thresholds are not only confusing, but they are unfair for the savers who are subjected to much lower thresholds than others in the schemes. Equalising the thresholds for the two schemes, which for some have become a barrier to buying a property within the scheme rules, and increasing it to £550,000 across all regions, is a simple change that would see the schemes continue to deliver on their purpose today. Throw in a commitment to an annual review and you have future-proofed them for the next generation.
The second critical update is to change the LISA withdrawal penalty. It cannot be right that if a saver accesses their savings to buy a home above the property price limit, or if they need to use them for any reason other than to buy a home, which may well be necessary due to the rising cost-of-living or if their personal circumstances change, they have to pay a financial penalty to the Government.
The current scheme rules state in either of these circumstances a 25% penalty withdrawal fee will be levied. This results in the saver not only forfeiting the Government bonus, but also a chunk of their own savings too. For somebody who has saved £4,000 a year for five years in a LISA, the penalty for accessing their savings outside the scheme’s (outdated) rules would be all the Government bonus of £5,000 – fair enough – plus an extra £1,250 of their own savings – not fair.
A simple change, reducing the LISA penalty withdrawal fee to 20%, would allow savers to retain all of their own savings, while still forfeiting the Government bonus. We know it’s a simple change
because it was introduced on a temporary basis during the Covid pandemic, and we need to see it come back permanently.
Our third ask is a change that will allow taxpayers to keep more of the interest earned on their savings, as they work towards building their personal financial resilience. The Personal Savings Allowance (PSA) was introduced when the Bank Rate was 0.5% and a basic rate taxpayer could have around £75,000 in savings tax-free. With 14 Bank Rate rises since then, the same saver today will hit the PSA threshold with a savings balance of around £20,000. Put simply, the PSA should reflect changes to the Bank Rate so the value of the tax-free savings remains in line with the original intentions, and not gradually watered down as we can see today.
The Budget on 6 March is a great opportunity for the Chancellor to make small changes that will ensure the spirit of the Government savings schemes remain intact. It’s all common sense really, and could be a legacy to be proud of.
Paul Broadhead is head of mortgage & housing policy at the Building Society Association
