Jeremy Hunt is being called to scrap an “unfair” fee which is leaving some first-time homebuyers facing an additional 25 per cent charge.
The Building Societies Association (BSA) and The Investing and Savings Alliance (TISA) are urging the Chancellor to reduce the withdrawal penalty on Lifetime ISAs (LISAs).
LISAs and Help to Buy ISAs have assisted first-time buyers with getting on to the property ladder but leading organisations are pushing for change to make sure young savers are not losing out.
If a LISA saver buys a home which costs more than £425,000 or needs to access their savings early for reasons outside of buying a home, they will need to pay a fee worth 25 per cent.
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Homebuyers risk being hit with a 25 per cent penalty on their savings
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Not only does this result in them missing out on their Government bonus that is linked to the account but LISA holders risk losing a significant proportion of their savings.
To help people retain their savings, the BSA and TISA recommend reducing the “unfair” penalty to 20 per cent, allowing them to forfeit the bonus but not ending up worse-off.
The organisations are also calling on Mr Hunt to raise the property price thresholds for the LISA and HTB ISA accounts, and equalise them, to £550,000.
Furthermore, the BSA and TISA are pushing for the thresholds to be reviewed every year and updated accordingly.
The Chancellor will announce any potential changes to tax thresholds or withdrawal fees at the Spring Budget on March 6.
Robin Fieth, the chief executive of the BSA, described the upcoming Budget as a “great opportunity” to impact first-time homebuyers in a great way.
He explained: “The change to the withdrawal penalty that we are calling for was introduced on a temporary basis during the Covid pandemic and provided much-needed support to consumers in that difficult time.
“That shows it can be done. I would urge the Chancellor to reintroduce this on a permanent basis, ensuring the spirit of these savings schemes, which is to encourage young people to start saving to buy their first home, remains intact.”
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PEXELSCarol Knight, the chief executive officer at TISA, added: “The current Lisa framework needs to better serve savers.”
A Treasury spokesperson said: “The Lifetime Isa helped over 56,000 people get on the property ladder last year.
“While the average price of a first-time home has increased, it remains below the cap across the vast majority of the country.
“As ever, we keep all aspects of the savings rules, including the Lisa, under review.”