Spring Budget 2024: Helping First Time Buyers and Savers
As you prepare for the upcoming Budget, the Building Societies Association wishes to draw the following policy proposals to your attention, to consider for inclusion within the package.
This is in addition to our joint letter with TISA on LISA reform. We have repeated our asks on LISA reform below for your ease.
Help to Buy and Lifetime ISAs
- Help to Buy ISAs (HTB ISA) and Lifetime ISAs (LISA) have already helped hundreds of thousands of first-time buyers on to the property ladder, by giving a 25% boost to their savings when they buy their first home. To ensure these schemes continue to be relevant to first-time buyers, two critical changes are needed.
1. Reduce the Lifetime ISA withdrawal penalty to stop taking savers own savings
- Reducing the LISA penalty withdrawal fee from 25% to 20% would allow savers to retain all of their own savings, whilst forfeiting the Government bonus if they buy a property above the scheme threshold or if they need to access their savings, which may be necessary due to the effects of the rising cost-of-living. This change was introduced on a temporary basis during the Covid pandemic (6 March 2020 – 5 April 2021) and provided much needed support to consumers in difficult times. The BSA and TISA urge the Chancellor to re-introduce this on a permanent basis, ensuring the spirit of these savings schemes, which is to encourage young people to start saving to buy their first home, remains intact.
- To receive the bonus the property purchased must be within the price thresholds set in the scheme rules. But if LISA account holders buy a property which is above the thresholds, they must pay a penalty payment of 25% of the total savings pot. This means they not only lose all of the Government bonus, but a chunk of their own savings too.
- For somebody who has saved £4,000 a year for five years in a LISA, the penalty for using their savings towards buying a house above the £450,000 threshold would be all the Government bonus of £5,000, plus an extra £1,250 of their own savings.
2. Increase and equalise Lifetime ISA and Help-to-Buy ISA property price thresholds and review these every year
- The second change that would benefit first-time buyers would be to increase and equalise the Lifetime ISA and Help-to-Buy ISA property price thresholds and review them every year. Despite a 30% increase in house prices since LISAs were introduced, the thresholds on both schemes have remained unchanged (Source: ONS House Prices). This is preventing some first-time buyers’ from buying a home within the price limits.
- The BSA and TISA are calling on the Government to equalise the thresholds in the two schemes and increase it to £550,000 across all regions. This reflects most of the growth in house prices since the schemes were launched. Once this change has been introduced, it is important that the thresholds continue to be reviewed on an annual basis to ensure they remain in step with house price changes.
3. Increase the Personal Savings Allowance
- The Personal Savings Allowance (PSA) was introduced at a time when the Bank Rate was 0.5% and a basic rate taxpayer could have around £75,000 in savings tax-free due to the PSA, based on the best paying instant access rates at the time. Since then there have been 14 rises in the Bank Rate, which now stands at 5.25%, and savings rates have increased in a similar way.
- Based on currently available savings rates, this means a basic rate taxpayer will reach the PSA threshold with savings balances of around £20,000. The PSA should reflect the changes to the Bank Rate, so the value of the tax-free savings remains in line with the original intentions.
4. Introduce workplace savings schemes
- An incredible 14 million people have less than £100 in savings – and 9 million people have no savings at all, according to MaPS. There are clear links between establishing good savings habits, financial resilience and wellbeing – with research making a connection between financial resilience, wellbeing and workplace productivity.
- There is a real potential to meet individual, corporate and national interests, through offering workplace savings schemes. The Government should help to open up this market by reducing regulatory barriers to opt-out schemes and exploring requiring employers with over 250 employees to offer workplace savings schemes through payroll deduction.
5. Financial Services VAT Review
- In the Spring Budget 2023 the Government committed to continue working with industry stakeholders to consider possible reforms to simplify the VAT treatment of financial services. We are yet to see a review or developed proposals for reform of this VAT framework and urge the Government to continue this work. The financial services industry operates in a dynamic environment, and needs a VAT framework without inconsistencies and which provides businesses with greater clarity and certainty.