Lifetime ISA - Another Boost for UK House Prices and Worsen Housing Market CrisisPersonal_Finance / ISA's Mar 17, 2016 - 06:45 AM GMT
George Osborne's flag ship personal savings account change of Budget 2016 is the announcement of the Lifetime ISA. Which is the latest of a myriad of policies aimed squarely at stoking UK housing market demand, effectively QE for first time buyers as the government seeks to hand out £1,000 for every £4,000 saved as long the monies are used to either buy ones first home or to fund retirement.
Specifications of the Lifetime ISA cash giveaway are -
- Starts April 2017.
- Open to the under 40's
- For Every £4k saved per year (maximum) then the government will top the account up with £1k (25% bonus).
- Earn interest on top of savings and bonus.
- Can use the savings+ bonus to buy their first home priced at upto £450,000.
- Can use the savings in retirement from Age 60 onwards.
- Can keep adding to the account upto the age of 50.
- Early withdrawal will not receive a bonus and be subject to a 5% charge.
Lifetime ISA vs Help to Buy
The maximum that can be saved in a Help to Buy ISA over 5 years at the rate of £200 per month is £12k which will yield a £3k bonus, totaling £15k. Whilst saving the maximum of £4k in a Lifetime ISA for 5 years would yield a bonus of £5k, totaling £25k, and continuing. Therefore for buying a property the Lifetime ISA is much better. Another point is that outside of London, the Help to Buy is limited to properties worth upto £250k, whilst for the Lifetime ISA the cap is £450k.
Whilst the lifetime ISA is great for first time home buyers. However, it offers a mixed picture for retirement as one is locking away funds until age 60, whilst pensions can be drawn from age 55. Another point is that it offers a bonus of 25%, whilst better than basic rate tax payer pensions contributions of 20%, nevertheless is far less than those in the 40% or 45% tax brackets.
Another point to consider is that those in the 20% tax band today can save in a Cash ISA and then when closer to retirement, if by then in a 40% tax bracket utilise cash ISA savings to fund a pension and receive the 40% top up. So for retirement purposes. Though of course the government could scrap pensions tax relief which would immediately make the Lifetime ISA far more appealing as a retirement vehicle.
Fuelling Housing Market Demand
Whilst for first time buyers, yes on the one hand it will boost cash deposits by 25%, but on the other hand it is clearly further INCREASING DEMAND which already far exceeds supply that is causing the crisis in UK housing as I covered in this video analysis -
Youtube 26 Mins - https://youtu.be/yQJIB7AuqRQ
Therefore the Lifetime ISA, just like the 'Help to Buy' scheme are just going push house prices even higher and thus make UK housing even less affordable as I covered in this video analysis:
UK House Prices 5 Year Forecast
It is now over 2 years and 2 months since excerpted analysis and the concluding 5 year trend forecast from the then forthcoming UK Housing Market ebook was published as excerpted below-
UK House Prices Forecast 2014 to 2018 - Conclusion
This forecast is based on the non seasonally adjusted Halifax House prices index that I have been tracking for over 25 years. The current house prices index for November 2013 is 174,671, with the starting point for the house prices forecast being my interim forecast as of July 2013 and its existing trend forecast into Mid 2014 of 187,000. Therefore this house prices forecast seeks to extend the existing forecast from Mid 2014 into the end of 2018 i.e. for 5 full years forward.
My concluding UK house prices forecast is for the Halifax NSA house prices index to target a trend to an average price of £270,600 by the end of 2018 which represents a 55% price rise on the most recent Halifax house prices data £174,671, that will make the the great bear market of 2008-2009 appear as a mere blip on the charts as the following forecast trend trajectory chart illustrates:
Recent Halifax average house prices (NSA) data for January 2016 of £210,108 is showing a 3% deviation against the forecast trend trajectory, which if it continued to persist then in terms of the long-term trend forecast for a 55% rise in average UK house prices by the end of 2018 would translate into an 8% reduction in the forecast outcome to approx a 47% rise by the end of 2018.
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By Nadeem Walayat
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Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.
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