By 
Thousands of savers have been charged average penalties of £575 for withdrawing their money from a savings product intended to help young people buy a home.
The Lifetime Isa (Lisa) was launched in 2017 and comes with a 25pc Government bonus, making it one of the most lucrative ways for first-time buyers to save.
But those who take their money out before they buy a house or turn 60, either for emergencies or because their plans changed, must pay a penalty. This works out as an effective charge of 6.3pc.
As much as £800,000 has been paid in penalties, according to data from providers with a combined 43,000 customers.
AJ Bell said 375 account holders paid penalties averaging £240, while Nutmeg said 1,000 savers had been charged an average of £700.
But the penalty is not the only pitfall which could befall savers. The value of a property which can be purchased with a Lisa is capped at £450,000.
This has not been increased in the three years since the account was launched, despite house price growth meaning some savers could be prevented from buying their dream homes, particularly in London and the south east.
Another factor which is often forgotten is the time limit, according to Laura Suter, of AJ Bell. The account must have been open for at least 12 months before the bonus can be used to buy a house. And the clock only starts ticking when the first payment is made.
Ms Suter said: “The 12-month rule is intended to stop people paying money in, immediately claiming the lucrative Government bonus and then withdrawing the money, but 12 months feels like a very long time. Six months, or even three months would be more reasonable.”
Lifetime ISA calculator
There is also an age limit, with those over the age of 40 restricted from opening a Lisa. Ms Suter also pointed out that it can take as long as eight weeks for the bonus to process, potentially slowing down a house purchase.
She also warned that recently married women could face delays in getting their bonus paid. Lisa providers submit claims for the bonus to HMRC, which matches personal details against its records. Ms Suter said anyone who has changed their name, most likely after marriage, but not updated the taxman could run into trouble.
A maximum of £4,000 can be saved into a Lisa each year, with the money tied up until savers buy a first home or reach the age of 60.
Are you a Lifetime Isa holder? Are you worried about penalty charges or the 12 month time limit? Tell us in the comments section below.
Comments