How Good are LISA’s? The Treasury Select Committee’s inquiry into the effectiveness of the LISA, has been published.

Ultimately, this reflects many of the issues that have already been raised.  Particularly, the view that the product is fundamentally flawed.  Notably, as it does not always deliver good outcomes for savers.

The Committee acknowledged that its dual purpose was confusing for savers.  In practice, this undermines its effectiveness. Savers are often unsure how to use the product, and this can lead to poor decisions.

The withdrawal penalty is one of the product’s most pressing problems. For example, it removes the government bonus and also reduces the saver’s contributions. For those facing unexpected costs or whose house purchase exceeds the price cap, the penalty feels disproportionate and unfair. Hence a simpler system that only recovers the bonus would be far fairer.

The report also cites the need to increase the age limit.  The current cut-off does not reflect the reality of when people now buy their first home.

How good are LISA’s: The £450,000 Property Price Cap

Similarly, the £450,000 property price cap is no longer realistic.  Ultimately, the ever-more-expensive housing market.  Despite saving diligently, many find they cannot use their LISA.  In particular, they need the property without facing a financial penalty.  Moreover, this undermines confidence in the product and adds to its complexity. There are numerous anecdotes of home buyers being constantly outbid by small sums over the threshold.  Subsequently, the other interested party knows that by doing so, the other buyer loses their ability to use their LISA.

In summary, this report should be the catalyst for change.

The Lifetime ISA does not sit comfortably within the wider savings system.  Furthermore, trying to make it serve two purposes has only added to the confusion.

There is a clear opportunity to replace it with a simpler, more targeted tool.  Fundamentally, a product that gives people the right support, whether they are saving for a home or planning for later life.

How good are LISA’s?. For help with buying a home and financial planning, contact us today. Call 01603 957599 for your free initial consultation.