Andy Burnham and the Chancellor John Healey are committed to offering a new first-time buyer ISA to savers who want to get on the property ladder, The i Paper has been told.
The Treasury is set to press ahead with Rachel Reeves’s plan to introduce a new savings account specifically aimed at helping people to buy their first home.
Officials are still looking at a “new and improved product” to replace the existing Lifetime ISA (LISA) , a Treasury spokesman confirmed.
The new ISA would pay a Government bonus when a buyer purchases their first property, with no withdrawal penalties for using the money for alternative means and no upper age limit for opening or saving into an account.
Currently, the LISA allows people to save up to £4,000 a year and receive a 25 per cent top-up from the Government annually, with savers only able to withdraw the money to buy their first home or for retirement when they reach age 60.
It has attracted criticism as savers can only open one if they are under 40, must stop paying in at 50, and face a 25 per cent penalty on withdrawals if the money is not used for a first home or retirement.
In one of her last acts as Chancellor at the end of June, Reeves unveiled a consultation on plans for the First Time Buyer ISA, which closed last month.
Asked by The i Paper whether the Government remained committed to creating the new savings account, a Treasury spokesman said: “We recognise that the Lifetime ISA is not working for everyone, particularly when people’s circumstances change.
“That is why we have consulted on a new and improved product, specifically designed to support first-time buyers and without penalty for withdrawals.”
Key aspects of the First Time Buyer ISA remain unclear, such as what the annual savings limit will be and the value of the bonus which the Government will add to savings. The price cap on properties has also not been specified – the LISA has a £450,000 cap, which means that some first time buyers in the most expensive parts of the country are unable to use it.
The consultation said this information would be announced “at a future fiscal event”, meaning it could be revealed at the Budget on 28 October.
Some experts have argued that delaying the bonus, rather than offering the top-up annually, does not create a visible reward that encourages positive saving habits. Savers would also miss out on compounding, meaning they may have to pay into their account for longer to reach the same level of deposit.
Nevertheless, with the Lloyds house price index showing a fall in prices in the 12 months to August, and fixed mortgage rates already on the rise amid turbulence in the bond market, the new ISA could be framed by Healey as a way of both providing a shot in the arm of the property market and helping people who want to get on the housing ladder.
In his first big speech as Chancellor on Monday, Healey tried to send a message of reassurance to the markets, acknowledging that Britain’s “borrowing costs are at historic highs” and promising that he and Burnham “are in lockstep in our commitment to meeting the fiscal rules at the upcoming Budget”.
He also said that it was a “moral” and “fiscal” duty get young people off welfare and into work.
Taking questions from journalists after his speech, Healey refused to rule out tax rises in the Budget. “If I respond to speculation now, that only fuels more speculation,” he said.
It follows warnings from economists that higher inflation and borrowing costs in the wake of the war in the Middle East have slashed Healey’s “headroom” – the spare money which the Government holds against its fiscal rules on borrowing – potentially requiring new tax increases or spending cuts.
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