LifeTime ISA Rules - Will the House Cap be inflated?

ItsRallyForMe

Hi All, 

I recently re-discovered that the Lifetime ISA's have a cap of 450K when buying your first home, with house prices raising 23% since the start of the Lifetime ISA's introduction do we think they are likely to increase this cap, as feeling a little flustered that my money in this account is now going to have 25% removed on withdrawal if i purchase over the cap.

I know this cap is okay for many but for those of us whom live near to the capital it has now became next to useless. 

Thanks in advance to all those whom reply.

eskbanker

Personally I don't think an increase is likely anytime soon, given the state of the country's finances, even though it's undoubtedly true that £450K doesn't buy as much now as it did when it was originally specified....

Albermarle

 as feeling a little flustered that my money in this account is now going to have 25% removed on withdrawal if i purchase over the cap.

The alternative is to leave it alone ( or keep adding to it for the bonus )and use it as a retirement pot /add on to pension.

ItsRallyForMe

eskbanker said:

Personally I don't think an increase is likely anytime soon, given the state of the country's finances, even though it's undoubtedly true that £450K doesn't buy as much now as it did when it was originally specified....

Sadly, I do sort of agree that it is unlikely anytime soon, partly as to why I wanted to post just to bring some level of attention to it. There are of course bigger problems in the world overall but still. Martin Lewis tweeted about this Nov 21 so I hope to some level it may get picked up again in the future.

Albermarle said:

The alternative is to leave it alone ( or keep adding to it for the bonus )and use it as a retirement pot /add on to pension.

Indeed while the retirement pot is a good idea it is not what I plan to use, so for me personally the money almost feels wasted. Especially given the compound interest on LISA's isn't enough to warrant the withdrawal charge. For many i do agree this will be an option they may regrettably or happily welcome however.

Malthusian

ItsRallyForMe said:

Hi All, 

I recently re-discovered that the Lifetime ISA's have a cap of 450K when buying your first home, with house prices raising 23% since the start of the Lifetime ISA's introduction do we think they are likely to increase this cap, as feeling a little flustered that my money in this account is now going to have 25% removed on withdrawal if i purchase over the cap.

I wouldn't count on it.

The Lifetime ISA was a vanity project of George Osborne's and the political world has forgotten it exists.

Personal allowances have been frozen until at least April 2026 and there is no chance that the Government will increase allowances for "unearned" income while leaving them frozen for working income.

Taking those factors into account, it seems a good bet that the Lifetime ISA will be allowed to fade into irrelevance. I.e. no-one will bother opening one with house purchase in mind as only very cheap homes will qualify, nor will anyone use them for retirement as pension tax relief is a better deal.

Especially given the compound interest on LISA's isn't enough to warrant the withdrawal charge.

Lifetime ISAs can be held in cash or stocks and shares the same as a conventional ISA, so if you aren't getting a high enough return considering how long the money is likely to remain there, that's a separate issue to the withdrawal charge.

steampowered

The government has not historically increased the caps on these products.

This government is all about "appearances over substance". Rather than increasing the cap the government is more likely to launch a completely new product would be launched, so that the Conservative government can get more newspaper coverage for "helping first time buyers".

A good example is the "Help to buy ISA". That was introduced in 2013, with a limit of £250k outside London or £450k in London. Those limits were never increased and the product is now closed for new accounts. 

orange-juice

I feel like if theyre not willing to raise the cap, then they should at the very least bring the withdrawal penalty down so that there is no gain to the saver, as they did during the pandemic.

Thrugelmir

As interest rates rise. Then the need to raise the cap might dissipate.  Still an adequate incentive for the majority of FTB's and a usefull aid to get on the first rung of the property ladder. 

Malthusian

steampowered said:

A good example is the "Help to buy ISA". That was introduced in 2013, with a limit of £250k outside London or £450k in London. Those limits were never increased and the product is now closed for new accounts.

Yep. I cashed in mine with no bonus because I got caught by the £250k limit. (Thanks to the bank of Mum and Dad, natch, but as house prices increase it will happen to less jammy sods as well.) I was lucky that the HTB ISA could be cashed in without penalty if it turned out to be a waste of time (although on the other hand there was no option to leave it to age 60 and get the bonus anyway).

orange-juice said:

I feel like if theyre not willing to raise the cap, then they should at the very least bring the withdrawal penalty down so that there is no gain to the saver, as they did during the pandemic.

I would put a fiver on that happening once the LISA has faded into irrelevance. Or even on the penalty being removed entirely, as expected HMRC receipts from LISA penalties will be increasingly small peanuts.

I genuinely wonder if whichever political wonk came up with the idea thought that would happen anyway because they couldn't do maths, and didn't know that 125% * 75% != 100%.

ItsRallyForMe

Appreciate all the responses regarding this, as at least doing so does bring it to some level of attention. And perhaps it will help someone whom is googling trying to find opinions as I was prior to this post.

I agree with all of you to be honest, sadly I expect not a lot will be done leaving many in a poor situation. Guess just another fun fact for us all to face when trying to become homeowners.