Martin Lewis sounds alarm to people with a homes worth more than £450,000

The Money Saving Expert has warned that many people could be hit with a costly penalty

People with properties worth north of £450,000 have been urged to stop and think by Martin Lewis. The financial guru has sounded the alarm for both current homeowners and aspiring first-time buyers, alerting them to steep fines potentially in their future.

During an appearance on BBC Radio 5 Live, he pointed out the flaws with ISAs and LISAs which now seem outmoded due to housing market changes. And he urged people to do their checks.

Despite its benefits, the Lifetime ISA (LISA), introduced in 2017 to help 18 to 39 year olds onto the housing ladder through a 25% savings booster, may not align well with today's property sector dynamics.

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On the programme, Martin illuminated: "You can take the money out only for one of two reasons: number one, you are buying a first time property, you've never bought a property before, you've never owned a property before and that property has to be worth under £450,000. The second reason is you've hit age 60 and then you can take the money out and you get to keep the bonus."

He further highlighted the substantial penalty for unauthorised withdrawals, adding: "No one who has opened the ISA has hit age 60 yet because they haven't been around long enough. It's a savings account. It's just a tax-free savings account, but the real key to it is the 25% state bonus. The problem with a lifetime ISA...the big one is if you take your money out for any other reason than to buy a first time qualifying property or at retirement effectively when you're age 60, you take a 25% penalty."

In his recent report, Martin explained that putting £10,000 into savings would typically yield a £2,500 bonus, amounting to £12,500. However, if withdrawals are made for purposes other than those allowed, a substantial 25% fee is charged, which would slash the total to £9,375a net loss of £625 on the original investment.

Martin highlighted the hefty £15 million in penalties faced by taxpayers in the tax year of 2024, commenting: "Now I don't have that much of a problem with that because that's to ensure that people are only using the LISA for the reasons intended."

Yet he pinpointed a significant issue with the Lifetime ISA, or LISA: "This is my problem, the LISA was launched in 2016. The property threshold limit in 2016 was £450,000 the property limit is still £450,000."

On addressing the difficulties faced by savers, particularly in regions such as London and the southeast, he remarked: "Many people, particularly in London, the southeast and other urban metropolitan areas, have been priced out due to rising house prices. They've saved as the government advised for their first property, but now their property is valued over £450,000. To withdraw the money, even to purchase a first-time property which is the purpose of this product, they face a significant penalty."

Summarising the implications of his findings on sanctions, Martin assessed that an estimated £1.8 million each year might be unfairly levied on fines against individuals using the LISA exactly in the way it was designed for.

Campaigners are pushing for urgent changes to the government's scheme aimed at helping first-time buyers, which penalises those purchasing homes over £450,000. The issue was highlighted after Mr Lewis previously brought it up.

One concerned individual noted the challenges within the London property market: "I live in London and only apartments are affordable at the £450K cap. A decent apartment (e.g. energy-efficient, quiet neighbourhood) hovers around £450K. My concern is that when interest rates decrease (and prices increase), buying an apartment in London will be infeasible."

Another person commented on the regional disparities: "House price in my area was capped at 250k, relatively useless. Seems like it's London and Everywhere else just like most things... Doesn't meet it's intended purpose."

Meanwhile, another remarked on age limitations: "Probably would have done had I not been as old as I am -59. But it does need some fixing re the cap."

Martin Lewis, the financial guru behind MoneySavingExpert.com, is among the voices demanding a significant overhaul of the lifetime ISA rules, which are designed to assist individuals in saving for a home or retirement. He has previously criticised the current system as "broken", arguing that it unjustly confiscates funds from young savers, leaving them with less than they originally put in.