Why we need to help people ‘Buy, baby, buy’

Amongst the economic doom and gloom of the Spring Statement, there was one sliver of news the Government was keen to share. House building in the UK is due for a future boom, with the Government’s plans on track to build 1.3 million new homes by the end of this parliament.

The issues surrounding home ownership in the UK are well documented. These new builds will hopefully tackle to some degree the supply side of the problem. But what about the demand side?

There’s no doubt people want new homes. But can they afford to buy them in a market that’s seen house prices rise dramatically by more than 50% over the past 10 years, and at a time when interest rates, and therefore borrowing costs, remain high? Some might be relying on the bank of mum and dad, but others may need help from savings products.

Nikhil Rathi, Chief Executive of the FCA, recently mused about giving people early access to their pension savings to help get them on the housing ladder. He isn’t the first to do so. Many have questioned tapping into pension savings to help overcome various financial challenges. However, all run into the essential problem that pension pots are there to give people an income tomorrow, not to solve today’s problems.

Anyway, there are already financial savings products out there which should be helping people to save for their first home. The lifetime ISA gives younger savers a 25% boost to their house deposit saving. However, as the Treasury Committee recently explored, it has flaws.

Instead of spreading the pensions jam even thinner to cover multiple goals, the Government would do better to fine tune the lifetime ISA so it really helps people. The maximum purchase price of £450,000 hasn’t shifted in the last seven years, despite house prices escalating, so that should be increased to a more realistic level. And by all means remove the government bonus if the plan isn’t used to buy a first house or for retirement, but a 6.25% additional exit penalty on the individual’s own savings needs binning. It has no place in a Consumer Duty 2025 world.

The lifetime ISA has a dual purpose. As well as funding a house purchase, it can also be a good solution for the self-employed who are saving for retirement, offering the equivalent of a basic rate tax relief boost to the retirement pot, without locking in savings. But self-employment isn’t the preserve of the young, and these bizarre age restrictions barring new plans for those over 40 and new payments for those over age 50 need to go.

It now looks odds-on we will soon get a consultation from the Treasury on ISA reform. I fervently hope this will tackle simplification of the ISA environment; reducing the over-complicated choice by initially merging cash and stocks & shares ISAs, creating a world where we can encourage more people to move from saving to investing – aided by advice and Targeted Support.

But this presents a good opportunity to also improve the lifetime ISA. If we’re adopting the mantra of ‘build, baby, build’ in relation to house building, we also need to help people to ‘buy, baby, buy’ – and lifetime ISAs could be the perfect product to do that.