The savings landscape in Britain is in continuous change and the latest product in the crosshairs of HM Treasury is the lifetime ISA (LISA).
An evolution of the help to buy ISA, the LISA is now approaching the end of its shelf life, as the government wants to replace it again, with consultation on a new first time buyer ISA closing tonight.
This is the latest attempt to fix a savings product that potential homebuyers have struggled to navigate for the best part of a decade, as Sam Christopher, proposition director at Quilter, noted.
“In little more than a decade, we have seen the help to buy ISA, the lifetime ISA and now the proposed first time buyer ISA,” she said.
“In that time, aspiring homeowners have had to navigate huge affordability pressures, and the homebuying process was only made more challenging by the changing rules, conditions and stipulations within these products that have not always reflected the realities of the housing market.”
LISAs let savers put in up to £4,000 a year, with the government adding a 25% bonus, on the understanding that the money goes toward a first home or stays locked away until age 60 for retirement. For Christopher, the product tried to do two jobs at once and the confusion this caused held it back.
“A more clearly targeted product would avoid that confusion, but it must also retain the features that worked for savers,” she said.
Top of his list is preserving bonuses paid as contributions are made, rather than only on completion.
“This allows savers to benefit from growth on those bonus payments over time, helping them build larger deposits and making home ownership more achievable.”
The LISA's withdrawal penalty should not be repeated either, she said: the government can reasonably claw back the bonus if someone's circumstances change, but “savers should not lose part of their own savings in the process”.
On a house price cap, Christopher favoured limiting the bonus rather than the property value, arguing that fixed price thresholds vary across the country and quickly go stale, particularly as the average age of a first-time buyer keeps rising.
“Constant changes and the introduction of new products risk undermining confidence and leaving people unsure whether a product will suit their needs,” she said, calling for a public awareness campaign to explain how the new ISA works once it is settled.