A lifting of the £450,000 limit on savers’ first property could be on the cards as chancellor Jeremy Hunt looks to appeal to would-be first-time buyers in the upcoming autumn statement.
Treasury sources said Hunt is considering changes to the government-backed Lifetime ISA (LISA) to help people save for a house deposit.
Currently anyone aged between 18 and 39 can open a LISA to save £4,000 each tax year, topped up with a 25 per cent annual bonus of up to £1,000.
These savings can be withdrawn penalty-free to put towards the deposit for a first home – but only if the property costs £450,000 or less if it is in London.
Calls for LISA reform
London's savers have been stung with a 25 per cent penalty charge if they try to use their LISA savings for a house above this cap.
An average property in London currently sells for £536,000, according to the latest data from the Office of National Statistics. This has rendered the LISA "virtually unusable" according to experts.
"We’ve been calling for the LISA rules to be reformed for some time," Katie Watts, head of campaigns at MoneySavingExpert, told Homes & Property.
"First-time buyers who can’t find a suitable home under that limit and who choose to purchase a property over it not only lose the government bonus and any interest they’ve earned, they also lose around 6.25 per cent of their own savings," she added.
"For someone who’s been saving the maximum since the scheme started, that is a penalty of £1,750 of their own cash."
To futureproof the scheme, Martin Lewis's free financial advice site recommends the government raise or lower the threshold for a penalty-free deposit withdrawal each year in line with house prices.
Help to Buy comeback unlikely
The number of first-time buyers in the capital fell by 24 per cent between January and August 2023, according to Halifax, with the average hopeful homeowner needing to save for a £133,078 deposit.
Hunt will reportedly not consider re-introducing the Help to Buy scheme over fears it could make inflation worse.
The scheme, which ran between 2013 and 2023, enabled people to buy a new build property with a five per cent deposit and a government equity loan of 40 per cent.
But Help to Buy’s London price cap of £600,000 encouraged housebuilders to inflate the price of new builds, according to a House of Lords committee report published in 2022.
Potential ISA for deposit savers
Hunt’s package for first-time buyers could also include an entirely new ISA to encourage first-time buyers to save, although details of what this could entail remain under wraps.
The Chancellor may also extend the 95 per cent government-backed mortgage guarantee scheme introduced by the then-chancellor Rishi Sunak in the 2021 Budget.
Low-deposit mortgages had become an endangered species following the 2008 financial crash and went all but extinct as the pandemic battered the UK economy.
Under the government's scheme, buyers need a deposit of just five percent to purchase a property worth up to £600,000.
In London, where saving for a 10 per cent minimum deposit is challenging, the scheme offers an alternative route for first-time buyers.
London still reeling from 2022 mini Budget
While house prices have dipped slightly in the capital this year, rents have risen 12 per cent in the same time period.
But Londoners hoping to get out of renting and into buying must contend with elevated mortgage rates.
The 5.25 per cent interest rate set by the Bank of England is the highest it’s been since January 2008.
Hunt will present the 2023 Autumn Statement, to Parliament on November 22.
His previous autumn statement was delivered on November 17 2022 in the aftermath of Liz Truss’s disastrous minibudget.
Since that mini Budget, the Bank of England gradually hiked the base rate from 0.75 per cent to 5.25 per cent, with the knock-on effect of mortgage costs spiraling.
A year on, London’s renters, first-time buyers, and mortgage re-payers are still struggling with the housing affordability crisis.
