Over half of UK first time buyers losing out on 'free' Government money

A recent survey conducted by workplace savings and investment provider Cushon, has found that while one in three adults under the age of 40 are saving to be able to buy their first home and get a foot on the property ladder, less than half of these (44.09 per cent) are taking advantage of top up bonuses offered by the Government by saving into a Lifetime ISA or Help to Buy ISA.

Of those saving to buy their first home, only 13.18 per cent of these are saving into a Lifetime ISA while 30.91 per cent are putting money into a Help to Buy ISA (the Lifetime ISA’s predecessor) and benefiting from Government top up bonuses which help them to reach their goals sooner. But this means that there are a lot of aspiring homeowners currently missing out on this ‘free money’ of up to GBP1,000 a year offered with a Lifetime ISA.

The Help to Buy ISA was closed to new applicants in November 2019, but still here is the Lifetime ISA which offers a 25 per cent Government top up bonus up to GBP1,000 per year on any savings as long as the money is used to purchase a first home or for retirement. Of those surveyed who are saving to get on to the property ladder, 31.82 per cent are saving into an instant access account, 25.45 per cent are saving into a fixed rate savings account. One in five (20.45 per cent) are saving into a cash ISA and 7.73 per cent are saving into a stocks and shares ISA. With interest rates at an all time low, the Government 25 per cent bonus on a Lifetime ISA would help these savers get on the housing ladder a lot quicker.

The research highlights how important it is to ensure that individuals are more informed about the different savings initiatives available and how they can help them reach their goals faster. Cushon is on a mission to change this, encouraging better education through workplace savings initiatives.

Employers can support their employees to get a foot on the housing ladder by encouraging them to pay money into a Lifetime ISA directly through their pay each month. Employers can also choose to contribute – splitting any pensions contributions over and above the auto enrolment minimum rates into a Lifetime ISA account instead. Something which will appeal to and engage younger workers who are prioritising buying their first home over saving for retirement.

Steve Watson, head of proposition, Cushon, says: “The Lifetime ISA is not getting the traction that it should. With a 25 per cent Government bonus it is the ‘no brainer’ product for the under 40’s looking to get on the housing ladder and could really speed up the reality of purchasing a home for a lot of young people.

“I think it’s the name that’s the issue – it just doesn’t resonate with the target market. The Help to Buy ISA does what it says on the tin, but the Lifetime ISA is ambiguous at best and more education and product awareness is desperately needed. With interest rates at an all-time low, there is no need to shop around, with the Government 25 per cent top-up, a LISA blows any interest rate out the water.”

The Lifetime ISA (LISA) is open to anyone under the age of 40 and lets you save up to GBP4,000 a year towards your first home or retirement, with the Government adding a 25 per cent bonus on top of what you save up to a maximum of GBP1,000 per year. The funds can be withdrawn, penalty free, to purchase a first home up to the value of GBP450,000 or to go towards retirement and be accessed from the age of 60.

If someone is saving for a deposit for a first home in a normal savings account, they are missing out on a massive boost. For example, if they have GBP4,000 saved in a savings account and they open up a LISA before the end of the tax year and transfer their cash, they will immediately get a GBP1k bonus. The LISA can be used for a deposit and the Government bonuses are paid straight into the LISA; you don’t have to claim them. If you pay into a LISA monthly, the bonuses are added monthly.