The Lifetime ISA (LISA) scheme, introduced in 2017 with the aim of helping young people save for retirement or a first home, has fallen short of its promise in London, where the average first-time buyer price now exceeds £460,000. The LISA's property price cap of £450,000 is seen by many as out of touch with the reality of the capital's housing market. This has led to a situation where savers are either forced to move out of London or face financial penalties when trying to access their funds.
Fraser Glenn and Sophie Bower, a young couple in their thirties, illustrate this dilemma. They had been saving into a LISA with the intention of buying a modest two-bedroom flat in Tower Hamlets. However, they found that the price cap made it nearly impossible to find a suitable property. As a result, Sophie had to withdraw her money from the LISA, incurring a financial penalty that cost her £3,500. Fraser, on the other hand, decided to keep his money in the LISA, leaving it in limbo until he reaches 60 years old.
Calvin Kern, a 23-year-old saving for a two-bedroom property with his girlfriend, has also been frustrated by the LISA. He has had to adjust his search to areas further east in London, such as Epping and Edgware, due to the high prices in his original target area of Stratford. Calvin advocates for the removal of the penalty for unauthorised withdrawals, arguing that it puts unnecessary pressure on young people trying to navigate the expensive London housing market.
Jordan Waite, who bought an ex-council flat in Archway just under the LISA cap, describes the search as a "massive struggle". He points out that while buyers can find properties within the cap by compromising on location or service charges, it's difficult to find a "future-proof" home for families. Jordan also criticises the LISA as a "noose around the neck" in London, suggesting that the withdrawal penalty is particularly harsh in the capital.
Helen Knapman, news and investigations editor at MoneySavingExpert, agrees that the LISA needs reform. She advocates for a two-pronged approach: removing the penalty and raising the property price cap in line with house prices in London. Knapman highlights the fact that buyers forced to withdraw their savings due to the cap can lose part of their own money through the 25% withdrawal charge.
The government, meanwhile, is considering new support for first-time buyers, but Knapman argues that existing LISA users should not be forgotten. The 25% withdrawal charge on early or unauthorised LISA withdrawals generated about £102m in revenue in 2024-25, indicating the significant impact of the penalty on savers.
In my opinion, the LISA scheme has fallen short of its potential in London due to the property price cap. This has led to a situation where young people are either forced to move out of the city or face financial penalties when trying to access their funds. The government needs to take a closer look at the scheme and consider reforms that will make it more accessible and less punitive for young people trying to navigate the expensive London housing market.
