Since their release in 2016, Lifetime ISAs (LISAs) have been a popular way to save for a new home. LISA savings accounts allow prospective buyers to save up to £4,000 per year tax-free and receive a 25% government bonus when they buy their first property.
Recently, LISAs have been used more than ever in a bid to combat the impact of rising house prices. But could LISA holders be putting their savings at risk?
LISA savings have doubled since 2016
A recent report from Hargreaves Lansdown reveals that the number of people maxing out their LISA allowance each year has doubled since 2016! As a result, around a third of LISA holders have maxed out their accounts so far this tax year in a bid to optimise their savings.
As well as this, the average amount withdrawn from a LISA to buy a property has grown over time to £18,000. Similarly, the average amount of savings currently held in a UK LISA account has tripled to £9,500 since the account was introduced.
According to Sarah Coles from Hargreaves Lansdown, the sudden surge in LISA accounts is due to rising house prices. She explains, “Just under a third of people paying into an HL LISA so far this tax year have put in the maximum allowed, in a race to build a big enough deposit as prices threaten to rise out of reach.”
However, while hopeful buyers are doing their bit to save, it seems the government could threaten their chances of getting onto the property ladder with LISA savings.
LISA savers could soon be caught out
The current LISA allowance sits at £4,000 per year and LISA savings can be used to buy a house with a value of up to the government’s property price limit of £450,000. For now, these conditions are feasible for buying a home in the UK. However, as housing prices continue to surge, LISA savers could be caught out in the long run!
Since the launch of the LISA account, housing prices have risen by 25%. As a result, the average price of a home in the UK is £274,712. If prices continue to rise at the same level, the average price of a home in the UK could soon surpass the government’s property price limit. This would mean savers wouldn’t be able to put their LISA savings towards their first home!
Since its launch, the price limit and yearly allowance of a LISA account have remained the same. If the LISA had risen at the same rate as housing inflation, the limit would now be £562,500.
The government is yet to revisit LISA limits. Commenting on the situation, Sarah Coles suggested that “Overall limits need to be linked to house price inflation, so buyers know they won’t be getting into a scheme they could be forced out of by a hot property market.”
What the future holds for LISAs
For now, it is still possible to buy a house in the UK that falls within the LISA price limit. However, if inflation doesn’t slow down, house prices could soon surge over the £450,000 threshold.
If prices continue to rise at the current rate, in just over 10 years the LISA price limit won’t be enough.
Therefore, if you don’t plan on buying a home within the next 10 years, you may want to consider opening another savings account. Stocks and shares ISAs offer excellent returns as well as a higher maximum annual allowance. With the government yet to revisit LISA terms, it may be worth considering an alternative savings account.
The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Don’t leave it until the last minute: get your ISA sorted now!
If you’re looking to invest in shares, ETFs or funds, then opening a Stocks and Shares ISA could be a great choice. Shelter up to £20,000 this tax year from the Taxman, there’s no UK income tax or capital gains to pay any potential profits.
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About the author
Ruby is a freelance writer who enjoys writing about all things personal finance. After embarking on her own side hustle journey three years ago, Ruby is passionate about helping others to learn about the ins and outs of persona… Read More
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