Skipton issues urgent ISA warning as millions of savers face housing crisis - 'it's a failure!'

The Group explains the ISA products, which have long helped people save for a deposit, are no longer fit for purpose and must be updated to meet today's affordability challenges.

Its new Home Affordability Index lays bare the scale of the problem with the data showing around five million adults are still living with their parents, and 98 per cent of them cannot afford a first-time buyer home in their area on their own income.

Even if the deposit hurdle were removed, 97 per cent would still be priced out.

The Index also reveals the crisis is nationwide. In every region of Great Britain fewer than 10 per cent of adults living at home could afford the average first-time buyer property, and in London, the East of England and the South West the figure drops below 1.5 per cent.

For those who could buy, affordability would remain out of reach, with more than nine in ten facing housing costs above 45 per cent of their income.

Skipton says reforming ISAs must form part of the solution, warning that without action, millions of young adults will remain locked out of homeownership for good.

Stuart Haire, Skipton Group CEO, said: "This data lays bare the systemic failure of our housing ecosystem. It’s a failure that is locking millions of young people out of independence, home ownership, and long-term financial stability.

"When 98 per cent of adults living with their parents can’t afford to leave, they’re not just facing a housing crisis – they’re facing a crisis of opportunity.

"At Skipton Group, we are unwavering in our commitment to make home ownership more than a distant aspiration. Whether through our lending, our estate agency network, or through research like this, we are determined to help people take meaningful steps towards a home of their own."

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In addition to the insights in the Home Affordability Index Report, Skipton Group is focusing on practical solutions including advocating to protect and reform the Lifetime ISA.

They wrote: "We believe the Government should protect and reform the Lifetime ISA as well as Cash ISAs which have been a valuable tool for many to save for a deposit, but needs reform to meet the challenges of today and for the future."

Chancellor Rachel Reeves has been warned that the Lifetime ISA (LISA) is "not fit for purpose and must be reformed" in the Autumn Budget.

More than 1.5 million people are currently using a Lifetime ISA to save for their first home, according to figures from HMRC.

People can put a maximum of £4,000 in each year, and the government will top it up by 25 per cent on top of any interest offered by the account provider.

First-time buyers using a Lifetime ISA are increasingly being hit with a 25 per cent penalty charge as more homes now exceed the £450,000 limit for penalty-free withdrawals.

Investment platform AJ Bell is urging the Government to raise the £450,000 cap annually in line with average house price inflation and to cut the exit penalty to 20 per cent

Dan Coatsworth, investment analyst at AJ Bell, said: "It’s vital that chancellor Rachel Reeves increases the maximum property value that people can buy using money held in a Lisa.

"The limit has been kept at £450,000 since Lisas were launched in April 2017 yet the average UK property price has increased by 27.9 per cent since that date."

Mr Coatsworth said one solution is to increase the maximum property value in line with annual house price inflation. He explained the limit should theoretically sit at £575,550 based on average UK property price growth of 27.9 per cent since Lisas launched in 2017.

He said: "Tweaking the maximum property value limit for penalty-free withdrawals from a Lisa by a small amount each year would make a massive difference to so many individuals. Many aspiring homeowners who’ve worked hard to save for a deposit now face the prospect of properties in their desired location exceeding the upper limit in a Lisa.

"They must either buy somewhere else with lower property prices or pay the 25 per cent penalty to withdraw their money from the Lisa."

As long as renters and buyers face substantial barriers to purchasing a home, Skipton Group continue to play its part in helping to dismantle them.

As well as ISA reform, the group are advocating for reform of property taxes, to remove the burden on first-time buyers.

They wrote: "This would make a significant difference, including improving the ease and flow of the market. A healthy market relies on free movement: older owners downsizing, families upsizing, and importantly, for this Index, first-time buyers getting on the ladder. P

"Policy should encourage that flow, not restrict it."