Martin Lewis has drawn attention to a savings account which offers a 25 per cent boost which could be of interest to first-time buyers.
The financial journalist and founder of Money Saving Expert shared several need-to-knows about Lifetime ISAs (LISAs).
Speaking on BBC Radio 5Live and The Martin Lewis Podcast today, he suggested people aged 18 to 39, who want to buy their first property one day, consider opening an account.
He said: “It could mean a free £1,000 each year towards your deposit.”
Lifetime ISA savers should note the property price cap to withdraw the money penalty-free for a first home
Savers can put up to £4,000 into a Lifetime ISA each year until they turn 50 and earn 25 per cent – up to £1,000 – on the deposit.
Mr Lewis told listeners: “Lifetime ISAs are the best currently available savings [accounts] for anyone who hopes one day to buy their first home because the state will add money to your deposit.
“They are a tax-free savings or investment account, openable when aged 18 to 39.”
Savers can put money into their account until they turn 50.
Mr Lewis went on to explain the money can be used for retirement savings or it can go towards a first home once it’s been opened for at least a year.
To use the Lifetime ISA money, first-time buyers will need to buy a property costing £450,000 or less, use a conveyancer or solicitor to act for the buyer in the purchase, and buy with a mortgage.
The financial journalist said: “If you are aged 18 to 39 in the UK and you have never bought a house and you don’t have a LISA or a Help to Buy ISA (which is its predecessor), I would suggest you put £1 in one today, or tomorrow, or next week, but soon.
“My reason for that is quite simple. You cannot get the bonus on a LISA unless you have had it open for a year. So by opening one with £1 now, even if you move it to another LISA provider later, you have started that clock ticking.”
Mr Lewis said it would mean that if a person then decides they want to buy a house, they can then put up to £4,000 a year into the account and get a £1,000 bonus.
If the money is withdrawn from the account before the age of 60, unless they are terminally ill with less than 12 months to live, or it doesn’t meet the criteria to withdraw for a first home, savers face paying a 25 per cent fee.
This means a person might need to withdraw more than they need in order to cover the charge.
Addressing people who opt to put £1 in the account just in case, Mr Lewis said: “If you never use it towards a qualifying first home and you want to take the money out afterwards, I accept you will only get 94p back. You will have lost six pence.”
The MoneySavingExpert.com founder and chair, said: “Many who have opened Lifetime ISAs (LISAs) with government encouragement now have not only a dead duck product – where they won’t get the promised 25 per cent boost – but one with a poisoned beak, because they’re fined to get their money out.
"The simple solution, which could be put into immediate effect, is for a LISA holder purchasing a first-time property for more than the maximum house price, not to be fined. So, they lose the Government’s 25 per cent bonus, but they get their own money and interest back.
"The fine was originally put in place to stop people using LISAs for purposes other than what they were intended for. House-buyers aren’t doing that, so they shouldn’t be penalised; they should at least get back what they put in.”
Mr Lewis suggested in the longer term, the Chancellor could link and backdate the LISA maximum to national or regional house price changes.
A HM Treasury spokesperson said: “The Lifetime ISA helped over 50,000 people get on the property ladder last year and 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.”