Online estate agent Tepilo looks at whether the Lifetime ISA will be of any use to savers looking to build up a deposit in 2018.
At the start of a new year, many people set themselves goals for the 12 months ahead. For a growing number of people the goal is to own a home by the time the year is out, or at the very least start putting aside some money for that all-important deposit.
So, whether you’ve been saving for a while or are just starting out, you’ll no doubt be looking for ways to help your money pile grow at a quicker rate.
The government has a few initiatives in place aimed at young buyers looking to save up for their first home. This includes the controversial Help to Buy ISA, launched by George Osborne in December 2015 and since subject to scrutiny over its purpose, integrity and the number of people it has actually helped.
More recently, the Lifetime ISA was introduced to help struggling first-time buyers save up.
Launched in April 2017, the Lifetime ISA is targeted at anyone aged 18 to 40 looking to buy a home for the first time. It enables savers to place up to £4,000 a year in to the account, with a 25% bonus received from the government. This annual bonus of up to £1,000 a year is paid until the age of 50.
There have, however, been huge question marks over the success of the scheme, which had a very underwhelming launch and has struggled ever since to get off the ground.
So should savers be considering it?
Low take-up dents scheme
One of the biggest problems the Lifetime ISA has faced is the reluctance of major banks and building societies to embrace it. When the Lifetime ISA launched, no major lenders were on board – and that is still the case now, despite the best efforts of ministers to convince banks otherwise.
In fact, the only provider offering a cash Lifetime ISA account is Skipton Building Society, with no major banks or building societies currently having plans to follow suit in 2018.
Back in February 2017, Jane Ellison, the then Financial Secretary to the Treasury, said she expected more banks to join over the course of the year once the advantages of the Lifetime ISA became clear. She repeated this mantra after the launch of the scheme, but her hope that the market would grow and more cash providers would come on board has proved totally fanciful.
Why are banks so reluctant?
The biggest reservation the banks have is the very real risk of mis-selling the Lifetime ISA to younger savers as a better option than a pension. The two-pronged approach of the Lifetime ISA – allowing savers to save towards a house purchase or a pension – has been criticised by some for being too confusing and messy, offering two very different things that don’t marry together easily.
Some fear a mis-selling scandal of PPI proportions if they offer the Lifetime ISA, with figures suggesting that those opting for a Lifetime ISA instead of a pension could end up being nearly £420,000 worse off over time.
While a number of other providers – including AJ Bell, Hargreaves Lansdown, Nutmeg and The Share Centre – do offer Lifetime ISA accounts, these are investment ISAs rather than cash ones. When saving towards a deposit, investment ISAs are seen as far less safe than cash ISAs.
Is there any hope for Lifetime ISAs?
Perhaps, if a recent surge over the Christmas period is indicative of a wider trend. There was a grab for Lifetimes ISAs in the week from Christmas Day to New Year’s Eve, with nearly 1,500 people opening a cash Lifetime ISA with Skipton during this time.
More than 50 accounts were opened with the building society on Christmas Day alone.
“It’s great to see that many young people have already taken action on their 2018 goals by putting measures in place to ensure their dreams of home ownership and preparing for the future can become a reality,” Kris Brewster, head of products at Skipton Building Society, commented. “Despite increasing house prices and squeezes on our wallets they are making a determined effort to get the keys to their first home.”
Skipton’s Lifetime ISA can be opened online and earns annual interest at a rate of 0.75%.
What does the future hold?
With only one provider offering a cash Lifetime ISA, the prospects for the scheme look bleak. While the Christmas period saw an increase in the number of people opening an account, the numbers were still very small and only with one provider.
Until the government can convince big lenders to get on board, the Lifetime ISA will be small-scale and inaccessible to most rather than mainstream in the way the Help to Buy ISA – for all its critics – has become since launch.