Budget 2016: What is the Lifetime ISA and will it help in north London?
- Credit: PA Wire/Press Association Images
Under-40s will receive a £1,000 per year bonus from the government to help them buy a property or save for retirement if they open a Lifetime ISA.
The new tax-free savings product was announced in the 2016 Budget and is set to replace the Help to Buy ISA by 2019.
Anyone aged between 18 and 40 can open a Lifetime ISA and can contribute up to £4,000 per year until they are 50 years old, with the government providing a 25 per cent bonus at the end of each tax year.
This means that those who save the maximum amount each year will receive a £1,000 bonus, or £1 additional for every £4 saved.
Savers can use the money to buy a property any time from 12 months after opening the account.
George Osborne hopes the Lifetime ISA will encourage young people to save. However, research from homeless charity Shelter found that half of private renters who want to buy a home could not save any money towards a deposit. A further £16 per cent managed to save less than £50 a month, or £600 a year.
You may also want to watch:
Dan Wilson Craw, policy manager at campaign group Generation Rent, said: “Compared to the scale of our national housing crisis, the measures in today’s budget are a drop in the ocean. This was not a budget for people on ordinary wages, looking for a home that they can actually afford, by any stretch of the imagination.
“The lifetime ISA involves free money for young people so sounds like a nice idea, but the biggest beneficiaries are those who can afford to put away the maximum £4,000 a year. I don’t know anyone who has a spare £4,000 after they’ve paid their rent for the year. If the government really wants to get people saving, it needs to do more to bring down housing costs.”
Separate research from Labour mayoral candidate Sadiq Khan found that Camden residents spend 76 per cent of their take home pay on rent.
- 1 Buyers launch legal action after £75k bill for flammable cladding
- 2 Developer's plan for six houses in old pub car park in Highgate Hill
- 3 Nazanin may become 'bargaining chip' in Iran nuclear deal, warns husband
- 4 Car crashes through South Hampstead garden wall - cyclist seriously injured
- 5 Abandoned burger trailer finally removed from Muswell Hill street
- 6 The Heath, exhaust theft, public access, Centene, the Streatery and more
- 7 Senior councillors knew of chance to buy office block for £12m less than they paid
- 8 Woman dies after house fire in Muswell Hill
- 9 Helen McCrory: 'Mighty' Tufnell Park actor dies aged 52
- 10 Camden's Levertons to arrange the funeral of Prince Philip on April 17
Housing commentators also fear that property prices are rising faster than savers can save.
The maximum amount that people can save into the ISA is £128,000 over the 32 years between age 18 and 50, with the government bonus capped at £32,000. Investment growth will accrue on both savers’ contributions and the government bonus.
The savings limit is per person, not per household, so a couple buying together could potentially save up to £256,000, with a government bonus of £64,000, or £320,000 in total.
This can be put towards property costing up to £450,000.
The average price of property in Camden rose to £1,007,330 in January 2016 according to the LSL House Price Index, putting homes in the borough squarely out of reach of people hoping to use the ISA.
Nick Collins of Hadleigh Residential in Belsize Park said: “To be honest, I think these things are a bit of a swizz, especially in London. It sounds marvellous but quite frankly, it’s not going to get you anywhere round here.
“We don’t sell stuff to first time buyers anymore. They’re an extinct breed. In the past I’d have talked to people who were between 22 and 28 who were buying their first property on a normal salary.
“The most recent property we sold to a first time buyer was a flat in Belsize Park which went for £925,000. They’re clearly not average first time buyers.”
Trevor Abrahmsohn of Glentree International also questioned the lack of measures to increase housing affordability.
He said: “No mention was made about reforms that will help build more affordable and private homes across the UK which is a very worrying matter for all.
“Someone needs to ‘grasp the nettle’ and reform the Planning Process that is holding back a wall of new developments that are much needed by this country as well as selective freeing up of green belt.”
The Lifetime ISA counts as part of your total ISA allowance, which is set to rise to £20,000 in 2017. You can save into a Lifetime ISA and a Help to Buy ISA in 2017/18 but can only use the government bonus from one to buy a home.