Lifetime ISA Property Price Cap Forces London First-Time Buyers to Incur Thousands in Penalties
The Lifetime ISA, introduced in 2017 to assist with retirement savings or a first home purchase, offers a 25% government bonus on annual contributions of up to £4,000. However, a penalty applies if funds are withdrawn for purposes other than a qualifying property purchase or retirement, costing savers 6.25% of their total savings due to the 25% charge.
Londoners Trapped by Outdated Price Cap
With the average first-time buyer in London now spending approximately £463,000, the scheme's £450,000 property price cap is widely criticised as unrealistic for the capital. Analysis from September 2025 indicated that the median property price in 13 London boroughs exceeded the cap.
Data from 2024-25 shows that 129,200 individuals across the UK made unauthorised LISA withdrawals, significantly outnumbering the 87,250 who used the scheme for a house purchase. This suggests a growing cohort of savers who are unable to meet the scheme's criteria or are penalised for doing so.
Fraser Glen, 35, and Sophie Bauer, 30, searched for over 30 properties in central and east London before realising the difficulty of finding a suitable flat under the cap. To purchase their £521,000 two-bedroom flat in Tower Hamlets, Sophie withdrew her LISA funds, losing £3,500. Fraser opted to keep his £50,000 in the LISA, leaving it inaccessible without penalty until he turns 60. Sophie commented, “What you're either doing is encouraging young people to move out of London where a lot of jobs and opportunities are, and then paying huge amounts to get in on the train, or you have to cash out like we did and take the loss.”
Calvin Kern, 23, has been saving for two years but now finds his initial aspirations for Stratford unattainable. He is now considering Epping or Edgware, further out in Zones 4 and 5, due to escalating prices. He advocates for the removal of the withdrawal penalty, particularly given London's high cost of living.
Jordan Waite, 31, and his partner secured an ex-council flat in Archway just under the cap in October 2025 after a “massive struggle.” They accepted a flat with an 82-year lease, now planning a £10,000 extension. Waite described the LISA as a “trap” for Londoners, suggesting it is not the “golden scheme it was sold as.”
Calls for Reform and Government Revenue
Helen Knapman, news and investigations editor at MoneySavingExpert, highlighted that the 25% withdrawal charge means buyers can lose part of their own contributions. She called for a “two-pronged approach” to reform, advocating for both the removal of the penalty and an increase in the property price cap, particularly for London where average first-time buyer prices are around £460,000.
The 25% withdrawal charge generated approximately £102 million in revenue for HMRC in 2024-25. An HM Treasury spokesperson stated the government's commitment to home ownership through planning overhauls and investments in housing, but did not address the specific concerns regarding the LISA cap and penalties.
