First-time buyers could be priced out of using the Lifetime ISA (LISA) tax-free savings product to buy a home in 62 regions by 2029, research suggests.
A LISA lets first-time buyers save for a mortgage deposit tax-free and the Government will even pay a 25% bonus.
But it can only be used to buy a property worth up to £450,000.
Research by investment platform AJ Bell, based on Land Registry data and Office for Budget Responsibility forecasts, found that flats and terraced houses in more parts of London will soon exceed the £450,000 limit, as will terraced houses in Hampshire, Hertfordshire and Watford is project to exceed £450,000 for the average price of a terraced house in 2027 while Croydon hits the tipping point in 2029.
Even typical first-time buyer properties in the Cotswolds, South Oxfordshire and parts of Kent are projected to be in the penalty zone over the next five years.
Dan Coatsworth, investment analyst at AJ Bell, said: “It’s vital that Chancellor Rachel Reeves increases the maximum property value that people can buy using money held in a Lifetime ISA,”
“The limit has been kept at £450,000 since Lifetime ISAs were launched in April 2017 yet the average UK property price has increased by 27.9% since that date.
“One solution is to increase the maximum property value in line with annual house price inflation.”
Coatsworth suggests the upper limit for properties bought using money from a Lifetime ISA without penalty would now be £575,550 had it been uprated by the 27.9% increase in average UK property prices since the tax-efficient account type was launched just under eight years ago.
He added: “Tweaking the maximum property value limit for penalty-free withdrawals from a Lifetime ISA by a small amount each year would make a massive difference to so many individuals.
“Many aspiring homeowners who’ve worked hard to save for a deposit now face the prospect of properties in their desired location exceeding the upper limit in a Lifetime ISA. They must either buy somewhere else with lower property prices or pay the 25% penalty to withdraw their money from the Lifetime ISA.
“Taking a hit via the penalty charge could see an aspiring homeowner left with a smaller deposit than they would have otherwise had, meaning they may have to take out a bigger mortgage which could also come with a higher rate of borrowing.”
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