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Money-saving expert Martin Lewis has issued a stark warning to prospective homeowners eyeing up properties valued at £450,000, cautioning that they could face penalties from the Government if they withdraw funds from a Lifetime ISA for their purchase. The BBC Sounds and ITV personality delved into the issue on his latest podcast episode with Adrian Chiles.
Lifetime ISAs (LISAs) allow savers to put away up to £4,000, after which the Government will add a 25 percent bonus of up to £1,000 to the savings. However, there are some key rules to be aware of when opening one.
During his appearance on Five Live and BBC Sounds, Mr Lewis outlined the limitations of the Lifetime ISA, stating: “You can take the money out only for one of two reasons: number one, you are buying a first-time property, you’ve never bought a property before, you’ve never owned a property before and that property has to be worth under £450,000.
“The second reason is you’ve hit age 60 and then you can take the money out and you get to keep the bonus.”
He continued, clarifying: “No one who has opened the ISA has hit age 60 yet because they haven’t been around long enough. It’s a savings account. It’s just a tax-free savings account, but the real key to it is the 25 percent state bonus.”
However, he noted: “The problem with a lifetime ISA…the big one is if you take your money out for any other reason than to buy a first time qualifying property or at retirement effectively when you’re age 60, you take a 25 percent penalty.”
According to the Government website, the property must cost £450,000 or less and it must be bought at least 12 months after the first payment into the LISA is made.
People must also use a conveyancer or solicitor to act for them in the purchase – the ISA provider will pay the funds directly to them. People must also be buying with a mortgage.
A concerned listener, currently in the market for a home, contacted the show and expressed their worries about the London housing market, reports Birmingham Live.
They said: “I live in London and only apartments are affordable at the £450,000 cap. A decent apartment (e.g. energy-efficient, quiet neighbourhood) hovers around £450,000.
“My concern is that when interest rates decrease (and prices increase), buying an apartment in London will be infeasible.”
A second user responded: “House prices in my area were capped at 250,000, relatively useless. Seems like it’s London and everywhere else just like most things… Doesn’t meet its intended purpose.”