Is the Lifetime ISA scheme beneficial for young workers?

In this market, young people are told to forget about ever owning a house. Forget about even owning that little dog with a little doggy door. Just forget it. The dream is dead and the housing market is in the toilet. In fact, the only thing you will be able to claim to own over the next 15 years is your debt. If only there was a government subsidised ISA to help this dire situation?

Well there is, and it’s the Lifetime ISA scheme. The average age of owning a home as of June 2015 was 31. This new saving scheme is designed specifically for under-40s and promises to contribute a government top-up of £1,000 if you contribute the maximum £4,000 in a tax year. The idea is that you can use this money to buy a first home without tax on capital growth.

So why wouldn’t you want to commit to this? It sounds like a great plan in the long-term and, honestly, it’s not like you’ve got many other options that will get you any closer to affording a mortgage.

However, there are some criticisms creeping out of the cracks that lampoon the Lifetime ISA scheme. For example, as City A.M report, “Former pensions minister Steve Webb accused the chancellor of risking ‘mass confusion’, with young people forced to “work until they drop” if they put their faith [in the ISA scheme]”.

Many people have also been picking up on the ISA’s steep penalties too. If you choose to take your money out early, you lose every penny of that government contribution (which is fair) but you’re also subject to a 5% charge.

The other issue is that it would take literally years to afford a deposit in a major city. First time buyers in London, for example, “needed an average deposit of £91,409 to purchase a house in 2015, according to the Halifax”. My janky math skills calculates that it would take over 20 years of ISA saving to get anywhere near from affording a decent place.

It’s all food for thought.