Martin Lewis explains how some Brits can reap rewards of LISA with just £1

Martin Lewis has issued some urgent advice around Lifetime ISAs, explaining that there are certain people who should try open it as soon as possible while others might not need to bother with it at all

Martin Lewis has issued an urgent advisory regarding a government savings product, explaining that while some individuals should consider opening it as soon as possible, others may not need to bother at all. The Money Saving Expert pointed out the technical downsides of a Lifetime ISA. These products are only available to people aged between 18 and 40 and offer similar benefits to a regular ISA, such as a stocks and shares or cash option, and tax efficiency.

However, the key difference between this government-backed product and standard savings accounts is the annual 25% bonus. Savers can't deposit more than £4,000 into their account each tax year, but maxing out this allowance will earn them a £1,000 bonus.

One of the other conditions of this product is that Brits can only withdraw their money to purchase their first home or for retirement purposes once they reach a certain age. The Money-Saving Expert warned that this limitation could render it worthless for some people.

On his BBC podcast, he explained: "The problem with a LISA, the big one, is if you take your money out for any other reason you take a 25% penalty." Doing some quick calculations, the expert highlighted that if you put in £10,000, the bonus will make your total £12,500. This new figure is what the penalty is based on so you would only be able to get back £9,375, essentially losing £625 or as Martin put it a 6.25% penalty.

While these restrictions are designed to ensure the account is used for its intended purpose, Martin pointed out a significant issue that has been overlooked. First-time buyers can only receive their bonus if the property they're purchasing is valued at less than £450,000 - a cap set in 2016 that hasn't been increased since.

The expert explained: "Many people especially in London, the South East and other metropolitan areas have been priced out. So they saved as the government told them to but that property is now above £450,000 and to take the money out even to buy a first time property they are facing a substantial."

The popular finance expert reassured that he's "lobbying hard" for this to be changed, but warned that some people "shouldn't bother" with the account if they're in this predicament. One caller, Sharon, a 20-year-old university student who plans to buy a house in London when she turns 30, asked if it would be worth maxing out a LISA this tax year. Martin advised her to open the account with just £1 but to "wait until the budget" in October before depositing any more money.

This is because Sharon falls into the category of people Martin believes could benefit from the LISA despite the penalties. This includes: "Anybody who has never bought a home and who is aged under 40, this includes your children over 18. I would 100% recommend that you put £1 ina LISA now."

He outlined his logic, saying: "As a first-time buyer, to get the bonus you have to have the product open for a year. By putting £1 in now, even if you don't intend to use it, you've got the clock ticking. So if in a year's time you think; 'oh I'm going to buy a house and it's only £440,000'. You put £4,000 into that LISA for the tax year and the next day you're eligible for the £1,000 bonus."

Martin further explained that with this strategy, the most significant loss savers would encounter is six and a quarter pence. He added: "I would personally say that's a decent risk to lose six and a quarter pence for the opportunity to have the bonus if you need it."