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Is the LISA going towards a dead end?

Following the budget news neglecting the Lifetime ISAs but at the same time unveiling a new problem thats about as niche, its starting to lead me down a road to think of them as heading into a sort of government sanctioned con.

Aside from what the government is (or isnt doing) about them, Im more focused on what the marketplace for them might. The competition among LISA providers is not great (to put it mildly) so I can imagine a situation where people can be given a rough enough deals that withdrawing the funds at a penalty might actually be the way to go.

Sure, things can change with a likely Labour government but that remains to be in the distance as of now so...do you still look at them as a decent product? Do you still set money aside on them with a peace of mind that, if nothing else, they just turn into an extra source of income?

Personally, I have an investment LISA which has done me ok. Im fine if it just ends up as a pension but Im becoming hesitant to "lock" too much into something that can offer so little that one could be better off just cutting the losses and invest outside of them.
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Comments

  • masonic
    masonic Posts: 25,524 Forumite
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    edited 7 March 2024 at 9:22PM
    I still max out a S&S LISA every tax year. I was rather hoping the scheme would be scrapped at some point and all LISAs converted into ISAs. If not, then mine will be a welcome tax free top-up over drawing down my SIPP up to my PA during my 60s. In terms of charges and investment options, my LISA is at least on a par with my other investment accounts, so lack of competition hasn't caused any issues so far.
  • boingy
    boingy Posts: 1,666 Forumite
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    If I was young enough I'd certainly be investing in one, not to buy a house but to boost retirement funds.
    And your comment about the budget "neglecting" the LISA is caused by Martin Lewis campaigning about them rather than any sinister ploy on the part of the govt. LISAs are as good as they have always been but Martin is making everyone think they are worse!

  • dcs34
    dcs34 Posts: 628 Forumite
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    edited 8 March 2024 at 8:21AM
    boingy said:
    LISAs are as good as they have always been but Martin is making everyone think they are worse!

    Appreciate this is a second order analysis but with inflation and rising house prices, the advantages and usability of LISAs has diminished since they were first introduced.

    The £450k limit could have bought someone a nice 2-bed flat in most London Boroughs when it was introduced in 2017; now you'd struggle to find even a 1-bed flat at the same specification in many areas of the capital.

    Uprating the property price limit would have cost the Government £0 but increased the usability of the product and reduced the extent to which people feel 'trapped' and 'forced' into paying a penalty to withdraw the money directly - despite in most cases still using the money towards their first home! 
  • JaneandBeth
    JaneandBeth Posts: 17 Forumite
    Sixth Anniversary 10 Posts
    Re Chancellor not changing 25% penalty on early withdrawals - I think he is right not to. This is a high-interest savings account towards a house or pension, nothing else. People will use it to buy a car, go on holiday, pay for weddings etc if they can just take out what they put in and lose just the bonus it has earned. Just for once, tell people they can’t have what they want and change the rules if they don’t like them. 
  • masonic
    masonic Posts: 25,524 Forumite
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    edited 8 March 2024 at 8:45AM
    dcs34 said:
    boingy said:
    LISAs are as good as they have always been but Martin is making everyone think they are worse!

    Appreciate this is a second order analysis but with inflation and rising house prices, the advantages and usability of LISAs has diminished since they were first introduced.

    The £450k limit could have bought someone a nice 2-bed flat in most London Boroughs when it was introduced in 2017; now you'd struggle to find even a 1-bed flat at the same specification in many areas of the capital.

    Uprating the property price limit would have cost the Government £0 but increased the usability of the product and reduced the extent to which people feel 'trapped' and 'forced' into paying a penalty to withdraw the money directly - despite in most cases still using the money towards their first home! 
    The beneficiaries of the LISA scheme when used towards a property purchase are existing homeowners, not FTB. Along with other incentives around the same time, it was put in place to keep house prices rising at a time when they should not have been rising. What really needs to be addressed is the problem of house prices being too high, then there would be no need to uprate the limit. Uprating the limit just puts more money into the pockets of sellers of overvalued homes who have already benefited from an asset that has risen significantly in value over the period they held it.
    On the point of uprating the limit costing the Government £0, this can only be true if nobody is being forced to make a non-qualifying withdrawal due to buying a property above the limit, which I do not think is the case. Many who hold their deposit in a LISA will not be able to magic up tens of thousands of pounds from their savings in order to fund their house purchase and then switch to using a LISA for retirement. Those people will be returning the bonus to the Government with interest. For this reason, if they uprate the limit, the Government will be paying more into the scheme overall.
  • dcs34
    dcs34 Posts: 628 Forumite
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    Re Chancellor not changing 25% penalty on early withdrawals - I think he is right not to. This is a high-interest savings account towards a house or pension, nothing else. People will use it to buy a car, go on holiday, pay for weddings etc if they can just take out what they put in and lose just the bonus it has earned. Just for once, tell people they can’t have what they want and change the rules if they don’t like them. 
    The happy balance would have been either to raise the limit or drop the penalty for first time purchases over £450k. That way people at least don't lose out if they're buying a first home (which is the stated policy of the product), but are still penalised for other spending decisions.
  • masonic
    masonic Posts: 25,524 Forumite
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    Re Chancellor not changing 25% penalty on early withdrawals - I think he is right not to. This is a high-interest savings account towards a house or pension, nothing else. People will use it to buy a car, go on holiday, pay for weddings etc if they can just take out what they put in and lose just the bonus it has earned. Just for once, tell people they can’t have what they want and change the rules if they don’t like them. 
    Interest rates on cash LISAs have not been competitive with general cash ISAs or non-ISA savings, so there is no benefit derived from using these for interest alone. So I cannot see a good argument against a 20% withdrawal penalty for some or all types of non-qualifying withdrawals.
  • amanda1024
    amanda1024 Posts: 419 Forumite
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    Re Chancellor not changing 25% penalty on early withdrawals - I think he is right not to. This is a high-interest savings account towards a house or pension, nothing else. People will use it to buy a car, go on holiday, pay for weddings etc if they can just take out what they put in and lose just the bonus it has earned. Just for once, tell people they can’t have what they want and change the rules if they don’t like them. 
    I don’t feel like uprating the maximum property value with inflation/average house price rises, or reducing the penalty for withdrawals specifically to buy a home that’s over the threshold, would be ‘changing the rules’. Most people aren’t suggesting a change to the rules for holidays, cars - but maybe that’s what I’ll spend mine on when I’m 60 :).

    Also - where are the ‘high interest’ LISAs? My S&S LISA is pretty similar to S&S ISAs, but I can only find cash LISAs paying a whole percentage point less than the best cash ISAs


  • cloud_dog
    cloud_dog Posts: 6,253 Forumite
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    edited 8 March 2024 at 5:05PM
    Re Chancellor not changing 25% penalty on early withdrawals - I think he is right not to. This is a high-interest savings account towards a house or pension, nothing else. People will use it to buy a car, go on holiday, pay for weddings etc if they can just take out what they put in and lose just the bonus it has earned. Just for once, tell people they can’t have what they want and change the rules if they don’t like them. 
    I don’t feel like uprating the maximum property value with inflation/average house price rises, or reducing the penalty for withdrawals specifically to buy a home that’s over the threshold, would be ‘changing the rules’. Most people aren’t suggesting a change to the rules for holidays, cars - but maybe that’s what I’ll spend mine on when I’m 60 :).

    Also - where are the ‘high interest’ LISAs? My S&S LISA is pretty similar to S&S ISAs, but I can only find cash LISAs paying a whole percentage point less than the best cash ISAs


    You can always use our most recent friends investments to replicate a pseudo cash savings, utilising either Royal London Short Term Money Market Fund or Lyxor Smart Overnight Return fund ETF( CSH2); useful for those S&S LISA who want to de-risk in the lead up to purchasing a property.  Even with the LISA platform cost they would currently be yielding c. 4.85% (currently yield c.5.18%, minus the fund charge c. 0.07% leaves c. 5.1%, and the platform charge 0.25% (HL and AJB) leaves c. 4.85%).
    Personal Responsibility - Sad but True :D

    Sometimes.... I am like a dog with a bone
  • Kaizen917
    Kaizen917 Posts: 99 Forumite
    Part of the Furniture 10 Posts Combo Breaker
    Im glad there are people also interested in the topic.

    I dont know if I came across the right way in the original post but I dont insist that LISAs are bad right now. People can hold both cash and investment ones at relatively similar terms as in the normal ISAs, depending on what their goals are. I really hope they remain competitive.

    My issue is rather that the longer they are neglected, the more will the few providers have an incentive to put people off with bad offers. We hope the market will prevent such scenario but its hard to expect otherwise in the medium to long-term.

    And also, there is a lot more that could be changed about them even if they dont touch the 25% penalty, things such as not taking up from the standard ISA allowance (we are due at least some increase to the 20k limit anyway) or not being able to contribute between 50 and 60 and where btw, it makes it accessible later than a SIPP.

    Allegedly, Hunt said he wanted to reform the LISA but had no chance to do it in this budget. Thats possible but it doesnt quite add up when they are putting effort on a UK ISA at the same time.
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