Martin Lewis warns under £450,000 home-buyers could get 'significant' fines

Martin Lewis on his ITV money show
-Credit: (Image: Reach Publishing Services Limited)


MoneySavingExpert founder Martin Lewis has issued a stark warning to homeowners and those looking to buy their first home, cautioning them about potential hefty fines. Speaking on BBC Radio 5 Live, he highlighted the pitfalls of ISAs and LISAs, which he believes are outdated due to changes in property prices since their inception.

The Lifetime ISA (LISA) aims to assist those aged 18 to 39 in purchasing their first home by adding a 25 per cent bonus to their savings. However, the scheme's parameters were set in 2017, a time when the housing market was significantly different.

Martin explained: "You can take the money out only for one of two reasons: number one, you are buying a first time property, you've never bought a property before, you've never owned a property before and that property has to be worth under £450,000. The second reason is you've hit age 60 and then you can take the money out and you get to keep the bonus."

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He continued, stressing the severity of the penalty for withdrawing funds for any other purpose. He said: "No one who has opened the ISA has hit age 60 yet because they haven't been around long enough. It's a savings account.

"It's just a tax-free savings account, but the real key to it is the 25% state bonus. The problem with a lifetime ISA...the big one is if you take your money out for any other reason than to buy a first time qualifying property or at retirement effectively when you're age 60, you take a 25% penalty."

To illustrate the issue, Martin detailed a scenario where saving £10,000 would yield a £2,500 bonus, totalling £12,500. However, upon withdrawal, a 25% charge is applied, leaving the saver with only £9,375 a loss of £625 from their original investment, reports the Manchester Evening News.

He also pointed out that in the tax year 2024, a whopping £15 million in penalties were handed over to the state. Commenting on the issue, he said: "Now I don't have that much of a problem with that because that's to ensure that people are only using the LISA for the reasons intended."

He then remarked: "This is my problem - the LISA was launched in 2016. The property threshold limit in 2016 was £450,000 the property limit is still £450,000."

He went on to explain how certain groups have been adversely affected: "Many people, particularly in London, the southeast and other urban metropolitan areas, have been priced out due to rising house prices. They've saved as the government advised for their first property, but now their property is valued over £450,000. To withdraw the money, even to purchase a first-time property which is the purpose of this product, they face a significant penalty."

Citing a review of fines, Martin assessed that approximately £1.8 million per annum in penalties are being shouldered by individuals utilising the LISA exactly as it's supposed to be used.