Mortgage Crisis Looms as Thousands Penalised for Saving

The government’s attempt to encourage first-time buyers to save for a home through the Lifetime ISA (LISA) has been deemed a failure, with over 185,000 savers fined a total of £127m for making unauthorised withdrawals. According to data collected by MPowered Mortgages, this hefty penalty has left many would-be homeowners reeling, and experts warn that thousands more could fall into the same trap as house prices continue to rise.

A graph showing the sharp increase in house prices across the UK

The LISA scheme, launched in 2017, was designed to help first-time buyers get on the property ladder by offering a 25% government bonus on savings. However, an unauthorised withdrawal penalty of 25% applies if money is taken for any reason other than buying a first home, being aged 60 or over, or being terminally ill. Furthermore, LISA savers are fined 6.25% if they buy a home costing over £450,000, which is classified as an unauthorised withdrawal penalty.

A photograph of a young couple looking at a property listing

The problem lies in the fact that house prices have risen sharply since the £450,000 limit was introduced. According to Land Registry data, the average UK property jumped in value by 29.3% between April 2017 and March 2024. Prices paid by first-time buyers soared by 42% in both Wales and North West England, and the average first-time buyer property now costs over £450,000 in four out of five London boroughs.

MPowered’s research reveals that 7% of LISA savers made an unauthorised withdrawal in the year to April 2023, each receiving an average fine of £633. The proportion of savers fined has more than doubled in just three years, and experts warn that thousands more could fall into the same trap as house prices start to rise again.

A chart showing the sharp increase in fines for LISA savers

MPowered is calling for the next government to urgently overhaul the LISA rules by index-linking the property price limit to take account of rising house prices. “Lifetime ISAs were created to help first-time buyers save up to buy a home, but thousands of savers are being unfairly penalised each year for doing just this,” said MPowered chief executive Stuart Cheetham.

The mortgage industry is not immune to the challenges posed by rising house prices. In a strategic move, Euclid Program Managers has launched Euclid Mortgage, a managing general underwriter (MGU) focused on underwriting mortgage credit risk for insurers and reinsurers. The new offering aims to address a market need by providing scalable access to the profitable and diverse mortgage reinsurance market.

A logo of Euclid Mortgage

Leading the initiative are Joe Monaghan and Joe Hissong, two experienced figures in the mortgage reinsurance industry. Monaghan will serve as the managing principal and CEO of Euclid Mortgage, following his contributions to the post-GFC mortgage reinsurance market at Aon. Hissong, on the other hand, will join as chief operating officer, bringing experience from Essent Group, Ltd, where he helped establish its MGA and Bermuda reinsurer.

Meanwhile, in the world of building societies, Leek Building Society chief executive officer Andrew Healy has announced he will be stepping down in July after six years in the position. Succeeding Healy will be Andy Deeks, who will join the building society on 1 August.

A photograph of a building society branch

In another development, Coventry Building Society has agreed to take over the Co-operative Bank, in a move that could have significant implications for the mortgage market.

A logo of the Co-operative Bank

As the mortgage industry continues to navigate the complexities of rising house prices and regulatory changes, one thing is certain – the next government must prioritise an overhaul of the LISA rules to ensure that first-time buyers are not unfairly penalised for saving for a home.