The lifetime Isa home-buying scheme is a flop, so why won’t the Treasury fix it?

theguardian.com:

O f all the counter-productive, demand-stimulating measures successive governments have introduced to try to palliate the effects of endlessly climbing house prices, the lifetime Isa may have the dubious honour of being the most perverse.

Announced by George Osborne, although introduced under Philip Hammond’s chancellorship, it was designed as a vehicle to encourage long-term saving. To sweeten the pot, the government pays in £1 for every £4 saved a year, up to a maximum bonus of £1,000.

For young people struggling to save, that guaranteed boost, in an environment of miserly interest rates and uncertain performance from stocks and shares, was very tempting; it’s estimated that about 1 million people have paid into a lifetime Isa since they were launched in 2017.

But there’s a sting in the tail. Unlike the pension freedoms introduced for older people, lifetime Isas are extremely restrictive. Account holders may only withdraw their funds for two reasons: a pension at age 60, or buying their first home.

If they try to take their money out for any other reason, the cost is punitive. The government claws back 25% of whatever they take out, directly plundering people’s savings.

Squint at this and you can just about see the logic of it. Lifetime Isas are supposed to encourage saving for long-term goals, so it makes sense to build fences around that pot.

But in fact, another stroke of Treasury brilliance makes it completely indefensible: that the maximum value of the first home you can buy using lifetime Isa funds is arbitrarily capped at £450,000 – and that limit is not index-linked.

What that means is that the actual purchasing power of the lifetime Isa has been decaying ever since it was introduced. According to the Office for