The Lifetime ISA (LISA) was designed to help young people save for retirement or purchase a first home, but in London, it's proving to be more of a hindrance than a help. The scheme's property price cap of £450,000 is out of step with the capital's housing market, making it difficult for first-time buyers to find affordable properties. This is particularly frustrating for those who have been saving for years, only to find that their savings are not enough to secure a home within the city.
Fraser Glenn and his partner Sophie Bower, for example, started saving into a LISA a few years ago with the intention of buying a modest two-bedroom flat in Tower Hamlets. However, they were unable to find a property under the price cap that met their needs, and Sophie had to withdraw her money, losing £3,500 in the process. This left them with a bad taste in their mouths and a sense of frustration.
Calvin Kern, another young Londoner, has been saving in the LISA for two years and is now looking to buy a two-bedroom property with his girlfriend. However, he has had to change his search criteria and is now considering properties in Epping or Edgware, further east in Zones 4 and 5. He is frustrated by the high prices and the lack of affordable options.
Jordan Waite, 31, also struggled to find a property within the LISA cap. He and his partner bought an ex-council flat in Archway for just under the £450,000 limit, but they had to compromise on location and take on high service charges. They also had to plan for future extensions, which could pose a problem when it comes to remortgaging or selling the property.
The issue is not just about the price cap, but also the penalty for unauthorised withdrawals. In 2024-25, more people made unauthorised withdrawals (129,200) than authorised withdrawals for a house purchase (87,250). This penalty, which costs savers 6.25% of their savings, is seen as a disincentive for young people to save in the LISA.
The problem is particularly acute in London, where average first-time buyer prices are around £460,000. Helen Knapman, news and investigations editor at MoneySavingExpert, argues that the LISA needs reform, including the removal of the penalty and an increase in the property price cap. She believes that a two-pronged approach is necessary to support first-time buyers in London.
The government is considering new support for first-time buyers, but existing LISA users should not be forgotten. The penalty on early or unauthorised LISA withdrawals generated about £102m in revenue in 2024-25, which highlights the need for reform. The Lifetime ISA was intended to help young people, but in London, it is currently more of a barrier than a solution.
