Home Property Unauthorised Lifetime ISA withdrawals soar as people combat the cost of living crisis

Unauthorised Lifetime ISA withdrawals soar as people combat the cost of living crisis

20th May 24 3:52 pm

New market analysis by peer-to-peer real estate investment platform, easyMoney, reveals that the number of people who are drawing on their property savings in order to afford day-to-day life has increased by 56% in the past year as the cost of living continues to scupper many people’s homebuying plans or their hopes of putting money away for their future.

easyMoney analysed the latest available UK Lifetime ISA data* to see how trends around the ways in which people are using their long-term ISA savings have changed in the past year, from the number of people who are using Lifetime ISA funds to buy homes, to those who are withdrawing early to simply endure the cost of daily living.

The Lifetime ISA was introduced in April 2017, designed to enable people between the ages of 18 and 40 to save money either for the purchase of a home, or simply for later life.

Up to £4,000 a year can be placed into a Lifetime ISA until the age of 50, and the government will top-up savings by 25% each year, up to an annual maximum of £1,000.

There are three circumstances in which you can withdraw money from a Lifetime ISA without charge: to buy a home; if you are aged 60 or over; or if you are terminally ill with less than 12 months to live.

If you withdraw for any other reason, it is known as an unauthorised withdrawal and you’ll pay a penalty charge of 25% which means you’re essentially giving back the top-up money provided by the government.

easyMoney’s data analysis shows that in the past year, the number of people utilising their Lifetime ISA to purchase a property has increased by 11.5%, rising from 50,300 withdrawals in 2021/22 up to 56,100 in 2022/23.

Since the Lifetime ISA was introduced in 2017, UK house prices have increased by 28.4%, and despite the rising cost of living and high mortgage costs of the past couple of years, prices have remained close to record highs, with the UK average currently standing at £280,660.

As a result of this, the total amount of Lifetime ISA savings that people have withdrawn for house purchases has increased by 18.2% on the year to stand at an annual total of almost £779 million.

Furthermore, the average amount withdrawn each time has grown by 6% to hit £13,877.

However, the rising cost of living and uncertain economic future has also led to a rise in people opting for unauthorised withdrawals, suggesting that many are sacrificing their savings pot to pay for the day-to-day running of life.

In the past year, the number of unauthorised withdrawals has increased by 56% to an annual total of 74,650.

The value of unauthorised withdrawals is up 53.1% to an annual total of almost £189 million and, as such, the amount that people are paying in early withdrawal penalty charges has increased by 53.1% to just over £47 million.

Jason Ferrando, CEO of easyMoney said, “The Lifetime ISA is all about planning for the future, giving people a tax-free way of saving money for a house purchase, or to fund the later years of life as a pension top-up. It was also a real show of generosity from the government who pledged to boost annual savings by 25%.

But the best laid plans don’t always come to fruition, and the financial pressures that so many are currently facing mean that they no longer have the luxury of putting money away and leaving it there. Instead, they’re having to withdraw early, accept the penalty charge, and spend the savings on immediate issues that require money today, not tomorrow.

Despite this trend, the benefits of ISAs remain true and people are smart to take advantage of their tax-free allowance each year. But we always encourage people to look at all of the ISA options available to them because the most common ones, such as the Cash ISA and Lifetime ISA, aren’t always the best option. Based on ambitions and requirements, something like an Innovative Finance ISA could be your best bet because you’re looking at really strong rates of returns, and there’s no obligation to keep the money locked away for a long period of time.”

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