Getting a foot on the property ladder has become increasingly difficult for first-time buyers in recent years due to rising house prices and soaring interest rates.
Those who are saving up to buy their first house are often advised to take advantage of the government schemes available, but Martin Lewis has now issued a warning to any first-time buyer using a Lifetime ISA.
Lifetime ISAs, also known as LISAs, are a type of savings account that helps people save for either their first house or their retirement. The main benefit of a LISA is that the government will give you a free 25 percent bonus on top of what you save each tax year.
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According to Martin Lewis' Money Saving Expert site, around half a million younger people are using a Lifetime ISA to save towards their first property.
You can open a LISA once you turn 18 and the account allows you to save up to £4,000 each year until you turn 50. The government will then add a 25 percent cash boost to your savings, up to a maximum of £1,000 per year.
Those with an ISA can only withdraw money if they're buying their first home, are aged 60 or over or become terminally ill. If you want to take money out for any other reason, you’ll pay a withdrawal charge of 25 percent.
Despite the obvious benefits of the LISA, Martin Lewis has now warned that there may be some downfalls to it.
This week, the money saving expert took to Twitter to share a warning to first-time buyers and asked Chancellor Jeremy Hunt for help in making it more effective.
Martin tweeted: "Lifetime ISAs are no longer fit for purpose for some 1st time buyers & some risk losing money. Today we ask @Jeremy_Hunt to either -Stop withdrawal penalty for those buying homes that no longer qualify or increase value of qualifying house."
Martin then explained that because there is a £450,000 limit on the price of a home you can buy with a LISA, many first-time buyers are losing money due to house prices rising, as the homes they're buying are out of this threshold.
He continued: "It's time the outdated rules were updated. A £450,00 home limit hasn't moved since launch at 2017 even though house prices have risen 35%. Either up that or drop the penalty."
The finance guru then shared a link to his Money Saving Expert site, where he explained his concern in more detail.
Martin Lewis, founder of MoneySavingExpert.com, said: "This isn't about pumping the housing market – this is about fairness to about half a million younger people the state sold a savings scheme to, that for some of them is now a dud. If a private firm had done this, it'd be getting close to mis-selling.
"Savers had a legitimate expectation that – over six years, amid huge house price inflation – under a fair system there would have been some uprating to the maximum house purchase limit. Without it, a chunk face being priced out, having to spend more on a property, and then having to pay the state a fine to access the money they'd put aside for a deposit.
"Then, to take the biscuit, the fact they then have a reduced deposit can decrease the value of the mortgage they will be accepted for.
"The changes we're asking for – either ditching the fine for those buying houses that no longer qualify or increasing the threshold, or both – are simple, easy to put into practice and would cost a relatively small amount in Government terms."
The report from MoneySavingExpert has been sent to the Treasury and the Financial Conduct Authority and is urging the Government to update the rules and outdated thresholds linked to Lifetime ISAs (LISAs).
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