Martin Lewis' urgent advice to anyone aged 18 to 40 who wants to buy first home
Martin Lewis, the nation's go-to expert for financial advice, has recommended that those aged 18 to 40 looking to buy their first home should consider opening a Lifetime ISA (LISA) to benefit from the government's generous 25% savings top-up.
Under the scheme, individuals can contribute up to £4,000 every tax year into their LISA and secure a 25% bonus from the government on that sum. However, this opportunity is uniquely available for either saving towards a first home or retirement, with penalties for withdrawing funds for other purposes.
On his popular Martin Lewis Podcast, the MoneySavingExpert.com creator stressed: "The Lifetime ISA is a product you can open when you are between the ages of 18 and 40 - so the last day you can open it, is the day before your 40th birthday."
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He further detailed: "You can then save up to £4,000 a year in it, and the state will add a 25% bonus on whatever you've saved. If you saved the maximum £4,000 a year, the state will add £1,000 that year. You can do that year after year and you keep getting the bonus until you are 50."
Additionally, Martin Lewis highlighted the benefit for couples considering joint homeownership; combined, they could enjoy an annual state bonus of up to £2,000 through their LISAs. However, he pointed out an essential caveat for prospective homebuyers: The property price must not exceed £450,000 to qualify for the LISA benefits, reports the Mirror.
This week, HMRC data showed that LISA withdrawal charges soared to over £75.2 million in the 2023-24 fiscal year, a sharp increase of nearly 40% from £54.3 million the previous year. It was also noted that while 56,900 people used their LISAs for their first home purchase last year, a significant number of account holders 99,650 faced stiff penalties due to unauthorised withdrawals.
Commenting on the issue, Hargreaves Lansdown's head of retirement analysis Helen Morrissey remarked: "The Lifetime Isa is proving hugely useful with almost 57,000 people using one to help them get that all-important first step on the housing ladder in 2023/24. However, there's massive room for improvement as around 100,000 people made an unauthorised withdrawal from their Lisa during the same period and got clobbered with a withdrawal penalty."
Morrissey suggested actionable changes, stating: "Reducing the exit penalty from 25% to 20% would ensure that only the effect of the Government bonus is removed rather than your own money and encourage more people to use a Lisa for retirement safe in the knowledge that they won't lose any of their own money should they need to access it early in a time of need."
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