LISA0066

Written evidence submitted by Anonymous

My name is xxxx xxxx, a 28 year old prospective first time buyer who opened a Lifetime ISA in 2020 with the intent of using the funds towards a deposit for my first home. I am now being faced with the reality of when I purchase my new home in 2026 that I will suffer a penalty because the property I want to purchase for my work and home circumstances will be in London and will cost more than £450,000. Therefore I have a personal interest in having the lifetime ISA to reflect the conditions of the UK in 2025.

The Problem

When the LISA was created, the £450,000 cap was set at a level that aligned with property prices in 2016. However, in the years since, property prices have risen significantly. According to the Office for National Statistics (ONS), UK house prices have increased by over 30% since 2016, with first-time buyers in many regions—especially London and the South East—now facing average house prices well above this cap.

This stagnation in the cap means that individuals who responsibly save through a LISA with the intention of using the funds for a property purchase are being penalised. They are either excluded from purchasing properties that exceed the outdated cap or forced to withdraw their savings with a punitive 25% penalty, effectively negating the government bonus and part of their own contributions.

Proposed Reforms

To ensure the Lifetime ISA remains effective and relevant, the following reforms should be considered:

1. Raise the House Price Cap: The house price cap should be updated to reflect current property market conditions and indexed to inflation to ensure it remains relevant over time. This would restore fairness, encourage saving, and support the policy’s intent of aiding first-time buyers.
2. Remove the Withdrawal Penalty: The 25% withdrawal penalty for non-qualifying uses should be removed. For first-time buyers who choose to withdraw funds for properties exceeding the cap, the government bonus should be returned, but the penalty on personal contributions should be eliminated. This adjustment would make the LISA more flexible and less financially punitive, encouraging wider participation in the scheme.

Conclusion

The Lifetime ISA’s current structure fails to meet the needs of modern first-time buyers, particularly due to the stagnant house price cap and punitive withdrawal rules. Reforming these aspects would make the LISA a more effective tool for achieving homeownership and promoting long-term financial security. I am one such prospective homeowner who is set to be penalised by the withdrawel charge due to the cost of houses in my area and so I have a personal investment in this matter.

January 2025