Martin Lewis has criticised the 25 per cent penalty on Lifetime ISA withdrawals as "ridiculously unfair" for savers unable to buy within the scheme’s property limit.
Speaking on his BBC podcast, Mr Lewis highlighted the impact on first-time buyers who opened accounts when the scheme launched in 2017.
Mr Lewis said: "Clearly, it's ridiculously unfair to have that frozen."
He added: "People got these products in 2017 thinking they were going to be able to use it."
TRENDING
Stories
Videos
Your Say
The Lifetime ISA allows savers to contribute up to £4,000 each year, with the Government adding a 25 per cent bonus worth up to £1,000 annually.
Funds can only be used towards a first home costing £450,000 or less, a threshold that has remained unchanged since the scheme was introduced.
House price increases have meant some buyers are no longer able to use their savings without triggering penalties.
Mr Lewis said: "Not only are they not going to get their bonus, but they're paying an effective penalty, so it's hideously unjust."
Martin Lewis criticises Lifetime ISA penalty as unfair
|GETTY
Withdrawals for properties above the limit, or for other purposes, incur a 25 per cent charge.
This removes the Government bonus and also reduces part of the saver’s original contributions.
Mr Lewis said some savers have been "priced out of the market" and now face paying "a fine, a penalty to the state, for having opened a product that the state wanted them to."
He said he has been raising concerns about the issue for several years and has discussed it directly with Rachel Reeves.
LATEST DEVELOPMENTS
Ms Reeves said she would look at the LISA
| PAMr Lewis said: "I've spoken to Rachel Reeves about it."
"She said she's looking at doing it, she's told me that when they do the consultation on the LISA replacement, they will look at whether they will increase the £450,000."
The Government has confirmed plans to replace the Lifetime ISA following the Autumn Budget 2025.
The consultation process is expected to consider whether the property price cap should be adjusted.
Mr Lewis said he remained uncertain whether changes would be introduced.
He said: "I don't know what's going to happen. I've had politicians look at me and effectively say, yes we'll up that limit at some point, and they've not done it."
Savers are advised to plan based on the current rules remaining in place.
Mr Lewis said: "You simply have to work on the assumption for the moment, that if you've got a Lifetime ISA, the limit is £450,000 and it's not going to change.
"I hope to be wrong, but I wouldn't be betting on being wrong."
Lifetime ISAs are available to those aged between 18 and 39, with contributions permitted until the age of 50.