The Treasury Select committee met yesterday to hear more evidence on the future of the Lifetime ISA.

The committee first met in February and had a range of speakers to discuss the viability of the product, which pays an annual bonus to savers of up to £1,000.

Much is up for discussion, including the extreme solution of abolishing the product altogether.

So what is the Government thinking on this? The committee heard evidence from MP Emma Reynolds, the economic secretary to the Treasury. 

Unfortunately, her comments didn’t provide much information on whether the LISA will be improved upon. 

Reynolds told the committee: “Any changes that could be made to improve that situation would cost money. That money would have to be found from somewhere else.”

What is the Lifetime ISA?

The Lifetime ISA or LISA is designed for people who wish to save a house deposit for their first home purchase. Alternatively, savers can use the LISA as an alternative (or addition) to a pension. 

If the saver doesn’t use it for a house deposit, then the money can’t be withdrawn until they turn 60. 

Savings of up to £4,000 a year get a 25% bonus – up to £1,000. But any withdrawal made that doesn’t include the above reasons incurs a 25% penalty. The problem here is the penalty is made on the whole amount, not just the bonus. This means in effect someone who takes money out gets less back than they put in. 

But although this aspect has drawn many critics, who have called for the penalty to be lowered to 20% – which would negate the losses – Reynolds, told the committee this was a feature not a flaw of the product. 

She told the committee: “Having rules around a penalty if you withdraw are in line with unauthorised withdrawals of a pension. The penalty of withdrawing your pension earlier is much heavier than the 25% in this case.  

“We can’t have a risk-free option of investing for the long-term, but if you take your money out, there is not a charge. We would not have that situation.”

The LISA also presents first-time buyers in areas such as London and the South East with an issue because the cap on property purchase prices is £450,000 – which prevents some savers from using the product in areas where prices are very high. 

Future of the LISA

Brian Byrnes, head of personal finance at finance app Moneybox, spoke exclusively to Mouthy Money yesterday ahead of the next committee. You can hear him explain all about the LISA – its past and its future – in the latest Mouthy Money podcast episode. 

Having given evidence at the committee hearing in February, Byrnes told the podcast that Moneybox anticipated some action from the Government on the LISA in the next Autumn Budget, later this year. 

On the back of the committee hearing, Byrnes added: “Yesterday’s Treasury Select Committee session highlighted the continued debate around the future of the LISA. While it’s encouraging to see it on the agenda, we believe now is the moment to take action. 

“Small, pragmatic changes – such as increasing the property price cap and adjusting the unauthorised withdrawal penalty – would ensure the LISA continues to deliver for first-time buyers in a fast-changing economic landscape. These aren’t radical changes – they’re common-sense updates that would make a great product even better.”

Byrnes also highlights a less-well-understood issue for the LISA – why major legacy banks don’t offer the product.

“It’s also important to clear up a common misconception: banks don’t avoid offering the LISA because of mis-selling concerns,” he says. “The reality is that administering a LISA is significantly more complex than other ISAs due to the need for real-time connections with HMRC. 

“For many larger institutions with legacy tech infrastructure, this operational burden – combined with the £4,000 annual contribution limit and lower average income of LISA savers – makes it commercially challenging. By addressing these barriers, we can unlock greater provider participation and wider access.

Ultimately Byrnes believes the LISA is a good product worth improving. 

“The Lifetime ISA (LISA) has been one of the most impactful financial products introduced in recent years, helping young people across the UK take control of their financial futures – particularly when it comes to buying their first home. Since its launch in 2017, the LISA has empowered a generation to build long-term savings habits, with the confidence that they can work towards both homeownership and long-term financial security.

“At Moneybox, we’ve seen this impact first-hand. Over the past year alone, we’ve recorded a 34% increase in customers opening a LISA. Importantly, 80% of our LISA savers earn £40k or less, demonstrating how vital this support is for those who need it most. These are hardworking individuals striving for financial independence, and the LISA is giving them the boost they need to get on the property ladder.

“While much focus is rightly placed on increasing housing supply, this remains a long-term goal. In the meantime, we urge the Government to invest in near-term, practical solutions that support aspiring first-time buyers today – helping them save, build deposits, and access affordable mortgages.

“We encourage policymakers to build on the solid foundation already in place and future-proof a product that is delivering real, measurable impact for young people nationwide.”

SAVING THE LIFETIME ISA: LISTEN TO THE FULL PODCAST EPISODE

Photo by cottonbro studio

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Mouthy Money co-editor Edmund Greaves looks back at the process of buying a house in 2022 and why it was the estate agents that proved to be the weakest link in the process.

My (now) wife and I were fortunate enough to be in a position to buy a house in 2022.

To get there required a lot of hard saving and an employer that was happy for me to move far enough away from central London to a place where property is more affordable.

We were also helped along in the process by the 95% LTV guarantee scheme, and the generous bonuses afforded through saving into two Lifetime ISAs (LISAs). As first-time buyers we also benefited from first-time buyer relief on stamp duty, lowering the overall cost of the purchase.

Buying a house has been difficult – even impossible – for many for a long time, but it has become all the more difficult following the rapid increase in mortgage rates over the past year. We did however get ahead of these issues thankfully. I do not envy those who want to buy now.

The process of buying a house was a chaotic experience, one that I think we were unprepared for at the outset. It requires a series of moving parts that only really function together if you as the buyer are as proactive as possible.

The market itself is eye-wateringly fractured, from mortgage brokers to lenders, conveyancers, surveyors and estate agents all operating in their own bubbles and at different speeds. Sometimes it feels like they are all whistling to a different tune, too.

But we made it onto the ladder and are very happy in our own home for the first time, despite the best efforts of galactically incompetent estate agents.

Brokers and lenders

Our broker was overall a positive experience – we got a good deal aside from anything else, locking in a five-year rate which in hindsight feels like a decent decision.

If I had one criticism of this part of the process it would be that the broker then pursued – nay hounded – my wife and I to try and sell us life insurance and protection policies. While I understand the importance of such products I felt absolutely that we were being pushed toward excessively high coverage policies that we simply weren’t ready to contemplate.

This was made into a much more negative experience than it needed to be, chiefly because we were called constantly to try and move us along the process. After a successful mortgage experience it did leave a bitter taste.

As for the lender, we had little real contact with them other than confirmatory letters, but everything proceeded in order, to little issue.

Surveyors and conveyancers

Perhaps the best part of the entire process for us was the surveyor we hired to check out the condition of the property we were buying. We used the Royal Institute of Chartered Surveyors (RICs) tool to find a local surveyor, and spoke to three of those listed.

In the end we picked a local guy who spoke well of the properties in the area and seemed knowledgeable. Living in North Devon you can quite often end up finding these sorts of services coming from all over. I remember speaking to a cheaper surveyor from Exeter who seemed to have no idea about the area which struck me as unhelpful.

Anyway, we picked the local guy and he was great, compiling a comprehensive report, answering our questions and generally being available to help, for which I shall commend and namecheck him – many thanks Alex from AHN Chartered Surveyors, who did a stand up job for us.

We also had a positive experience with our conveyancers, My Home Move. Throughout the process they were helpful and constructive, without eye-watering fees and a helpful online system that helped us visualise where we were in the process at all times.

The firm also put all documents digital-first which we found helpful, especially as it sped up the process and meant we weren’t wholly reliant on physical postage and documents. It felt efficient and effective.

This brings me, unfortunately, to the absolute worst aspect of buying a house, in our experience.

Professional dissemblers Estate agents

At no point in any interaction with an estate agent in the process of buying a house did I feel they were being honest, helpful or constructive in the way they dealt with us, the buyers.

I understand that they draw their fees from sellers – but who do you think is ultimately funding that? We had, in the event, some fairly major hiccups in the process that made this exponentially worse.

Long story short – while we were in the early stages of buying the house, the flat we were renting experienced a horrendous flood (a story for another blog…). We had several thousand pounds worth of possessions destroyed and were forced to live in a local hotel by a petrol station, a singularly awful experience I wouldn’t wish upon anyone.

Now, at this juncture our motivation to complete the process, which beforehand was proceeding at a leisurely pace, dialled up several notches. I did everything in my power to dot the i’s and cross the t’s to bring the process to a completion and at every step in that nightmare the estate agents stood in our way.

They dissembled, delayed, dropped and deserted us when we needed someone who could coalesce the process and get us over the line.

With the house at the bottom end of a three-property chain, it culminated in an issue with the property at the top of the chain which needed an indemnity policy of some description creating by the participant conveyancers.

The details are a little unclear but essentially the entire chain hinged on this one issue and we sat, waiting, for six weeks for it to be fixed – despite everyone in the chain being ready to exchange and all parties being aware of our hotel-living plight.

Top tips for dealing with an estate agent as a first-time buyer

1. Don’t expect the agent to look after you, as you’re not paying them – the seller is. Their best interests aren’t necessarily yours. They just want to make sure you buy the property.

2. The estate agent is often the fulcrum of the process which involves a mind-boggling number of participants, because they are the ones talking to everybody. If you get a lazy one, make sure YOU are the proactive one who breathes down their neck to get things resolved.

3. Don’t let estate agents rush you into decisions. We were pressured many times, particularly when it came to being told a property was “about to go under offer” etc. Take your time.

4. Use ultimatums if it comes to it. It’s the only way we got our deal across the line in the end. It is a nuclear option unfortunately, but sometimes that’s the only way to make a message clear. 

The estate agents, who I will not name for the pleasure of not giving them a right to reply to this column, did nothing to expedite the issue and sat with their thumbs in their own fundaments for nearly two months.

It culminated in me, threatening first via phone call, and then when that didn’t drive the point home, via signed letter, that if the snag wasn’t fixed to a deadline of 48 hours then we would be withdrawing from the house purchase and collapsing the chain.

And would you believe, the estate agent miraculously coalesced all the constituent parties and fixed the problem…within 24 hours of this ultimatum. Almost…almost as if it was never really a major problem to begin with!

I have never been so exasperated by such sheer incompetence, a lack of empathy and flagrant disdain.

And to put the cherry on the icing of this cake, when we finally completed and I went to pick up the keys to our new home, the person who handed them to me wrung their hands and, gurning, told me how lucky I was because the seller had left behind an expensive light fixture that wasn’t on the list and a woodshed full of wood.

In fairness, the wood has been a nice little freebie considering energy bills this winter but that’s not the point.

No, I have never felt so unappreciated as when the buyer of a house subject to the sneering attitude of every estate agent I came across.

Perhaps we got a bad apple business, but where we live it is rather a large one in the area. I can only guess if this experience is replicated around the rest of the UK.

If you’ve had a bad experience with estate agents, let me know in the comments or email editors@mouthymoney.co.uk. The best reader correspondence gets a prize!

Photo by Landon Martin on Unsplash

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Mouthy Money Your Questions Answered panelist Helen Morrissey answers a reader’s question about their options when it comes to saving for a retirement if you’re self-employed.

Question: I’m 30 years old and self-employed. I don’t have a pension but would like to start saving around £250 a month for my future. Where should I start?

Answer: There are lots of personal pension providers out there so it’s worth doing your research to make sure you get the right plan for you.

Different providers will charge different fees and it’s important you understand what you are paying for and not handing over money for things you don’t need.

First let’s look at how much you can put away. You mention you want to contribute around £250 per month which is great – many self-employed people contribute on a more ad-hoc basis as their income rises and falls. If this is the case, it’s worth making sure your provider allows you to make these more irregular payments.

It’s also important that as time goes on you revisit your contributions on a regular basis and if you can increase them then this can have a huge impact on how much you end up with at retirement.

Investments are another key factor. Many people don’t feel confident making investment choices themselves and if this is the case providers will offer a default option which is designed to suit the needs of the majority of people.

However, if you have strong ideas about how and where you want to invest it is important to check your provider can meet your needs. There should be plenty of information about the options on offer on the provider’s website.

Most providers will offer you a wide range of investment options though if you want more flexibility, a self-invested personal pension (SIPP) may be a better option for you rather than a standard personal pension.

With a SIPP, you can make changes to your investments whenever you like, and you can either choose to manage your own investments or pay a financial adviser to help you.

The service you receive is also an important consideration. Pension providers will offer various tools and resources but take a look at their different offerings.

Some providers will offer a lot of tips and research into different investment options for instance which you might make a lot of use of. What kind of support does the provider offer online or over the phone is also worth considering.

Pensions are the main product people use to save for retirement but there are also other options worth considering.

The Lifetime ISA (LISA) was introduced a few years back to help people saving for retirement or for their first home. These products are available to people between the ages of 18-40.

Each year you can contribute up to £4,000 and benefit from a 25% government top up. This top up acts in a very similar way to the basic rate tax relief you get on a pension contribution so for people who don’t benefit from an employer contribution to their pension – such as the self-employed – then it’s a good option.

Added to this you can access the money from a LISA early if needed though you will be subject to a 25% penalty if you aren’t using it for house purchase or retirement. This penalty is a drawback, and we would like to see the government revisit it but if you did experience a big drop in income and needed to access the money you could do so.

This isn’t the case with a pension as you can’t access the money until you hit age 55. Another issue to consider with a LISA is that you can only contribute up until the age of 50 whereas you can contribute for longer to a pension, so this is also worth considering when weighing up your options.

Helen is a senior pensions and retirement analyst

Helen is senior pensions and retirement analyst at Hargreaves Lansdown. Prior to joining HL Helen worked at Royal London as a pensions and personal finance specialist working with the media to raise awareness of important retirement issues. Prior to this she was an award-winning journalist with 15 years’ experience of writing and editing trade publications specialising in pensions and retirement.

Photo by Ian Schneider on Unsplash

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Mouthy Money’s Your Questions Answered panellist Thomas Skinner, financial planning director and founder of Barnaby Cecil, answers a reader’s question on what to do with leftover Lifetime ISA after purchasing a house.

Question: We’ve recently bought a house and have leftover Lifetime ISAs with nothing in them. We’d like to save a small amount of money each month for retirement (both in our early 30s). Is it better to use our ISAs or contribute extra to our pensions?

I understand pensions are generous with relief, but won’t I just get hit with that tax when I come to use it later in life? The Lifetime ISA (LISA) seems attractive because there’s no tax implications in the future and it has a bonus which is better than tax relief.

Answer: Congratulations on the recent purchase of your property. The LISA and pension both have tax advantages and create an interesting set of options for savers. 

LISA investments are made from net income, after income tax has been paid, and receive a 25% bonus. The limit is £4,000 per annum (with £1,000 bonus applied) but, significantly, you cannot pay into a LISA after you turn 50.

And so, while they provide an attractive vehicle in which to save, your 50s could be the point in your career where you are able to make very substantial savings into your retirement. 

For that reason, pensions are still a very attractive vehicle. Particularly if you are a higher rate taxpayer and currently pay tax at 40-45%.

Or, if you earn above £100,000 and are caught by the loss of your personal allowance and wish to dip below this level, you could perhaps use a salary sacrifice scheme at work. This is because the payments receive tax relief when made and then benefit from tax-free growth. 

When you access your pension, which will be from 57 from 2028, you can draw 25% tax free, and the remaining amount is taxed at your marginal income rate at the time. Which could be a rate much lower than your current working tax rate.  

Seek independent financial advice before making any final decision but you could always consider using a combination of ISA, LISA and pension to create a portfolio of retirement accounts. Each has their own advantages and could create a flexible retirement solution. 

Thomas Skinner, financial planning director and founder of Barnaby Cecil

Have you got a burning money question? Ask your question here

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Greggs is giving away free sausage rolls with orders over £5 for Euro 2020.

The popular high street baker will give away a free vegan or pork sausage roll the day after a goal is scored in UK-based Euro 2020 matches.

So, for example, you can get a free sausage roll today because the Czech Republic scored against Scotland in their match at Hampden Park on Monday.

To get your free sausage roll, you just need to download the Just Eat app or go to the Just Eat website and make an order over £5 on Greggs, if you have one available in your area for delivery or collection.

There are 11 more games in the UK to be played which means there could be up to 11 more free sausage rolls on offer.

Savings rates rise after hitting rock bottom

UK savings account rates are rising after hitting rock bottom, according to financial data firm Moneyfacts.

It is the first time since October 2020 that rates have not fallen in consecutive months, says Moneyfacts.

In fact, some average account rates are rising slightly with average notice account rate rising from 0.36% to 0.40%, the average one year fixed bond rate increasing from 0.44% to 0.48% and the average longer term bond rate rising from 0.66% to 0.72%.

Typical easy access savings rate stayed the same month-on-month, at 0.16%, while all ISA rates including easy access ISAs, stayed at 0.22%.

The fact that rates have stopped falling suggests the market may be about to turn around. Anyone saving for the longer term should consider alternative places to put their money such as the stock market.

Lifetime ISA deposits double

The latest figures from HMRC suggest the LIfetime ISA may finally be taking off with the public.

Deposits into Lifetime ISAs or LISAs doubled in 2019/20 to £1.26 billion, up from £604 million in 2018/19. This means the government paid out over £300 million in bonuses to savers in 2019/20.

The LISA was slow to take off but now seems to be gathering support as savers look to its healthy 25% deposit to boost their savings.

Anyone aged 18-40 can open one and save up to £4,000 which will give a maximum £1,000 bonus. It can be saved via cash, best if you’re saving for less than five years, or via stocks and shares, better for long term saving.

The money, however, must be used either as a deposit to buy a house or accessed for retirement savings after age 60. Otherwise withdrawals face stiff penalties which could leave you less money than you started with.

WATCH: Mouthy Money co-editor Edmund Greaves talksa through these stories with James Max on the talkRADIO business breakfast:

Image courtesy of Greggs.

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I never really thought it would become a reality, but I have started on the path to home ownership now I’m leaving London

My girlfriend and I have been fortunate during the pandemic to have kept our jobs and to have had a warm (rented) flat in South London to call home.

We’ve been mostly comfortable with this situation, but living in London during a pandemic has forced something of a rethink. I don’t think we’re the only ones either.

One in seven Londoners wants to leave the city thanks to the pandemic, a survey conducted by the London Assembly in August 2020 found. With a population of around eight million, that’s a staggering 1.14 million people wanting out.

I’m not from London, I only moved here in 2016. I also don’t have a lot of family in the UK. This makes me pretty footloose. The GF has lived in London for longer, although she’s from Devon originally.

So, leaving London – the obvious place to go would be to head south west, where she has family and friends.

Coming to this decision together – that we would actually rather be down in that part of the world – has been something of a turning point in terms of our personal finances and goals.

Foot on the ladder

Living in London with no clear endpoint, I have always been resigned to the idea of not being a homeowner. Cobbling together a deposit for a property in the capital just seems insurmountable. It is ‘possible,’ but it would just take far too long to be a realistic choice.

Neither of us have parents who are able to give whopping great helping hands either. So, until very recently, I’ve not really thought about saving to buy a home. It’s not been worth it.

But suddenly, moving to Devon, which we’re able to do because I have a very chill, flexible employer, and the GF has a very in-demand skill as a nurse, the gamut of options has opened to us like a floodgate.

Between us we’re not quite starting from zero. The GF has around £4,000 in savings, and I have about £1,000. The reason I don’t have more is I’ve been chipping away at some old credit card debt. Until now I probably could have saved more but with no real long-term incentive, beyond topping up my pension, I haven’t really felt the need.

So, what to do to get the ball rolling?

LISA

We’re opening LISAs. That is, [L]ifetime [ISA]s. You can opt for one of two types – a stocks and shares LISA, which invests your money in financial markets, or a cash LISA, which operates more like an old-fashioned savings account with a headline interest rate.

The market for cash LISAs isn’t great at the moment, but there’s not a lot of point sticking it in the stock market when the chances are we’ll be needing the money relatively soon.

To paint a picture of how long we think it will take to save, here some official figures:

In London, the average house price is £513,997 according to the latest figures from the Office for National Statistics. In the South West, where we’re headed, that figure is £278,391. To get somewhere near a 10% deposit for that figure, we’d need about £27,000.

The LISA is actually extremely generous. You’re allowed to save up to £4,000 a year into one with the government adding in 25% of what you’ve saved up £1,000 a year. The government website explains in more detail here.

The GF and I figure if we tighten our belts properly (we haven’t really been given to thriftiness during Covid because, well, you only live once etc) we can each save around £330 a month into our LISAs – so around £3,960 each a year. Topping off the £40 difference at the end, we’ll have the full £4,000 which becomes £5,000 with the bonus.

In two years’ time, considering what we’ve started with, we should have around £26,250 before interest. Top it off a bit or wait a bit longer and we could even get to £30,000.

Which brings me to the next point…where to put the money?

As I said before, the market isn’t great at the moment for cash LISAs. The ‘best’ of the bunch is currently Moneybox which comes with a 1.11% rate on your cash, which is what we’ve chosen.

Built in is a 0.6% bonus which goes after 12 months, unfortunately, so we’ll have to see if there’s anything good on the market then and switch.

Mortgage misery

The mortgage market is a bit of a mess at the moment, especially if you’re a first-time buyer.

Before coronavirus came along you could pick up a mortgage with just a 5% deposit, although a lot of lenders pulled these deals as the economy began to tank. But now many lenders are asking for at least 20%.

Now, this is where our strategy becomes a bit of a gambit. We are essentially gambling that by 2023, some normality will have been restored, and we’ll be able to use our deposit as a 10% commitment on a loan. House prices in Devon are better than London, but if we can only get a 20% mortgage by then – £27,000 sadly (and absurdly) won’t get us very far. That being said there is evidence 10% LTV mortgages are making a comeback.

But at the moment I take the view this isn’t our fault. If in that time what we have isn’t enough, we’ll re-evaluate. The issue of deposits is one that predates the pandemic and is structural to the housing market.

If we can’t get on the ladder after that time, then it’ll be an issue with the lenders and the way the government tends to the market. Until then though, it’s up to us to prove we’re disciplined and driven to meet our savings goals.

There’s no doubt the two of us are in a fortunate position, with secure flexible employment during what is a crazy time in the world. But despite starting from a low savings base, hopefully that dream of homeownership will become a reality sooner than I ever thought possible, thanks to a bit of careful planning and a bit of parsimony.

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