OneFamily research has revealed of the 7.4 million first-time buyers in the UK eligible for a Lifetime ISA, only 6% are taking advantage of the additional £1,000 savings top-up a year being offered by the government.
The Lifetime ISA was introduced to replace the Help to Buy ISA and help first-time buyers, between the ages of 18 and 39, to get on the property ladder. A maximum of £4,000 can be saved each year and the government will top this by 25%, up to £1,000 a year. If all eligible first-time buyers took a Lifetime ISA and paid in the full amount, the bonuses paid by the government would be £7.4 billion every year.
The research found that the low uptake is being driven by a lack of awareness with 55% of 18-39-year old first-time buyers saying they had never heard of the Lifetime ISA or if they had heard of it, they didn’t know what it was.
Despite ongoing low interest rates on cash savings, 45% are using a standard savings account, 21% are using a Help to Buy ISA and 13% are using a cash ISA. With the average house in the UK costing £227,000, to save a 20% deposit of £45,000 first time buyers need to make their money work hard.
Over the last five years average interest rates on cash savings accounts have returned 6.88%, while money invested into OneFamily’s main investment fund has returned 42.6%.
Nici Audhlam-Gardiner, managing director of Lifetime ISAs, said: “The Lifetime ISA should be a no-brainer for first-time buyers, as there isn’t a product that competes with it for the bonus you get back on your savings, plus the potential investment returns. First-time buyers can also use it for that all-important house deposit, which is one of the biggest flaws with the Help to Buy ISA, as savings can only be accessed after completion.
“This research shows that millions of first-time buyers aren’t making the most of the generous bonuses on offer to them at no cost, and are losing out on additional returns by saving in cash.”
The average time first time buyers expect to save for a first home is six years. If they invest the full amount of £4,000 each year into a Lifetime ISA, with the government bonus added, they will have a saving pot of £30,000. Add a stocks and shares potential investment return of 5% per year and they would have over £36,000 to put towards a first home.