Martin Lewis gives LISA 'right now' alert to anyone with house worth less than £450,000

Martin Lewis has highlighted the downsides of a Lifetime ISA including a 25 per cent 'penalty' for taking the money out - and for anyone buying a house under £450,000. These products are only available to people between the ages of 18 and 40 and offer some of the same benefits as normal ISAs such as a stock and shares or cash options and the tax-efficiency aspect.

However, the biggest difference between the government-backed product and normal savings accounts is the 25% bonus provided every year. Savers aren’t able to put more than £4,000 into their account every tax year but maxing out this allowance will see them earning £1,000 in bonus cash.

One of the biggest caveats to this product is that Brits can only withdraw their money to buy their first home or for retirement purposes once they reach an appropriate age. The Money-Saving Expert warned that this limitation could make it more of a money-drainer than saver for some people.

He explained on his BBC podcast: “The problem with a LISA is if you take your money out for any other reason you take a 25% penalty.” Doing some on-the-go maths, the expert revealed that if you put in £10,000, the bonus will make your total £12,500. This new figure is what the penalty is based on so you would only be able to get back £9,375, essentially losing £625 or as Martin put it “a 6.25% penalty”.

While these restrictions encourage people to use the account for the exact reasons it was made, Martin highlighted one issue that has slipped through the cracks; first-time buyers can only get their bonus if the house they’re buying is under £450,000, a limit set in 2016 that hasn’t been raised since. The expert explained: “Many people especially in London, the South East and other metropolitan areas have been priced out.

“So they saved as the government told them to but that property is now above £450,000 and to take the money out even to buy a first time property they are facing a substantial penalty.” The beloved finance guru assured he’s “lobbying hard” to get this changed but he warned that some people “shouldn’t bother” with the account if they’re facing this situation.

One caller, Sharon, a 20-year-old university student who has plans to buy a house in London around the time she turns 30, asked if it would be worth maxing out a LISA this tax year. Martin encouraged her to open the account with just £1 but “wait until the budget” in October before adding anymore in.

This is because Sharon fell into the group Martin believes could benefit from the LISA regardless of the penalties. This includes: “Anybody who has never bought a home and who is aged under 40, this includes your children over 18. I would 100% recommend that you put £1 in a LISA now.”

He explained his reasoning: “As a first-time buyer, to get the bonus you have to have the product open for a year. By putting £1 in now, even if you don’t intend to use it, you’ve got the clock ticking. So if in a year’s time you think; ‘oh I’m going to buy a house and it’s only £440,000’. You put £4,000 into that LISA for the tax year and the next day you’re eligible for the £1,000 bonus.”

With this method, Martin explained that the biggest loss savers would face is less than 7p. He added: “I would personally say that’s a decent risk to lose six and a quarter pence for the opportunity to have the bonus if you need it.”