LISA0112
Written evidence submitted by Anonymous
My name is xxxxxx xxxxx, I am 32 and live in South London with my partner.
I am a qualified architect, and currently work as xxxxxxxxxxxxxxxxxxxxxx in a North London local authority.
I am submitting evidence to this enquiry as an individual.
I took out a Lifetime ISA when I was a student studying my masters at xxxxxxxxxx xxxxxxxxxxx. At the time I wanted to start investing through an investment platform/app, with the goal of saving for my first home deposit. I assumed that a cautious/balanced investment strategy would help me attain this goal, at least 5 years in the future. Now 8 years on and living in London, this goal is of more immediate concern.
The majority of my deposit savings are within the Lifetime ISA ‘wrapper’. It has taken me some time since moving to London in 2019 to feel financially secure. It is difficult as a young adult and graduate to pay high rents and living costs, as well as building a savings habit for longer term goals. However, I have worked hard and saved responsibility with these goals in mind.
My financial wellbeing has a big impact on my overall mental health, and over the years this has waxed and waned. Having now reached a point where I feel I have a reasonable prospect of achieving what felt at a point like an unrealistic goal, the limitations on my Lifetime ISA feel unfair and punitive.
I feel stuck between two difficult choices: either move far away from where I live and work to find a property within the cap or remain in rented accommodation while watching my savings become inaccessible. This sense of being penalised for doing the right thing has left me feeling disheartened and anxious. The pressure of trying to secure a home while navigating these restrictions is emotionally draining and feels deeply unfair, especially as someone who considers themselves an average earner simply trying to build a stable future.
The Lifetime ISA was meant to empower first-time buyers, but its current limitations leave many people like me feeling trapped and unsupported. I hope my perspective can highlight the very real emotional toll these constraints take on ordinary savers and encourage thoughtful reforms to make the LISA fit for purpose.
The Lifetime ISA (LISA) is increasingly unfit for purpose in its current design, especially for first-time buyers in high-cost areas like London. While the product’s aim is to help young people save for a house deposit, the £450,000 cap on eligible property prices has not kept pace with the rapid increase in house prices since the product’s introduction in 2017. This leaves many savers, like myself, in a difficult position.
When I opened my LISA as a student in 2017, I did so in good faith, believing it would help me save towards my first home. However, in the years since, the London housing market has seen significant price inflation, pushing even modest properties well beyond the £450,000 threshold. As a result, I’m now locked into a product that penalises me with a 25% withdrawal charge if I need to access my savings for any other reason, including for a deposit on a property above this amount. This penalty not only removes the government bonus but also some of my own contributions.
This rigid framework makes the LISA increasingly inaccessible for those of us living in areas with higher property values. To make it fit for purpose, the government must consider radically revising or scrapping the property price cap, especially in high-cost regions, or provide more flexibility around withdrawals without punitive charges. Without these changes, the LISA risks becoming a product that fails the very people it was designed to help: first-time buyers trying to get a foothold on the property ladder.
2. How well do consumers transition between using the Lifetime ISA as a product for house purchase, to then a product for pension saving?
Not applicable to me as an individual.
3. Given its policy purposes, is the Lifetime ISA value for money for the Government?
The Lifetime ISA’s value for money for the government is clearly questionable in its current form, particularly because it fails to support ordinary, hardworking people like me who are trying to navigate an increasingly unaffordable housing market. While I understand that the government may not want to be seen as propping up those looking to buy in wealthier areas, the policy overlooks the fact that people like me-on an average income-are being penalised for wanting to put down roots and invest in a home that is appropriate for this stage of my life.
I am approaching my mid thirties, now working as a project manager in a London borough local authority, and still a first-time buyer. Like many people my age, I am no longer looking to buy a tiny starter home but rather a property I can grow into as I plan for the future. Yet, within the Lifetime ISA’s £450,000 price limit, finding such a property in my current area is nearly impossible. This is despite the fact that I work hard and have saved responsibly for years. To use my LISA, I would need to either move much further away from where I live and work or downsize to something smaller than the rental properties I’ve been living in, both of which seem deeply counterproductive to the product’s purpose of helping people achieve stability and security through homeownership.
If the government wants the Lifetime ISA to deliver value for money, it must recognise that the housing market has evolved dramatically since the product’s introduction. The current price cap excludes vast swathes of the market in high-cost areas (including most of London), disproportionately impacting ordinary earners who are simply trying to buy a modest home near their jobs. Without reforms, such as regionally adjusted price caps or greater flexibility in how the funds can be used, the Lifetime ISA risks becoming a policy that benefits only a select few while leaving others penalised for circumstances beyond their control. This is not just a question of fairness, but also of whether the government’s investment in the scheme is truly meeting its goals of supporting first-time buyers and encouraging homeownership.
4. Is the Lifetime ISA a suitable pension savings product?
Not applicable to me as an individual.
5. Should the Lifetime ISA be abolished?
I do not think the scheme can be abolished, without a suitable replacement or transfer/withdrawal strategy for those currently locked in a similar position to me.
6. Should the Lifetime ISA be reformed to remove the withdrawal penalty?
From my perspective, the Lifetime ISA should be reformed to remove or significantly reduce the withdrawal penalty. While the product was designed to help young people save for their first home, the current rules fail to account for life’s uncertainties, like career changes or housing market fluctuations, that can make the product impractical or even punitive.
If I want to access my LISA savings for a property a penny over £450,000 (or any other reason) the 25% withdrawal penalty doesn’t just claw back the government bonus, it takes a chunk of my own contributions as well, which feels unnecessarily harsh for a product designed to encourage saving.
The withdrawal penalty should be reformed to reflect the realities of a changing housing market and people’s evolving circumstances. For example, waiving the penalty for savers who are priced out of their local housing market or need flexibility for career-related relocations would make the product far more fair and practical. Without changes like these, the LISA risks punishing savers who acted in good faith but now find themselves unable to use it as intended.
7. Should the Lifetime ISA be restricted to those with no access to a workplace pension?
Restricting the Lifetime ISA (LISA) to those without access to a workplace pension would fundamentally undermine its purpose and alienate a significant group of savers for whom it was designed. The LISA is meant to support first-time buyers and help people save for retirement. While workplace pensions are a valuable tool for long-term financial security, they are not designed to address the immediate and specific challenge of saving for a house deposit, an additional challenge that the LISA aims to tackle.
For someone like me, an average earner in my thirties, the LISA is an important complement to my workplace pension, not a replacement. I already contribute to my pension, but saving for a home in addition to that requires a separate, targeted effort. Housing costs have skyrocketed in urban areas, making it nearly impossible to save for a deposit without tools like the LISA. Restricting access to the LISA would penalise individuals who are working hard to save responsibly for a home and a future.
Moreover, workplace pensions and the LISA serve distinct purposes. While a pension provides long-term retirement security, the LISA helps younger savers achieve critical life milestones, like buying their first home. Denying access to the LISA based on pension availability would create a false either/or scenario, when in reality, most people need both to build a stable financial foundation.
Rather than restricting access, reforms should focus on making the LISA more flexible and effective, such as adjusting the property price cap, reducing or scrapping withdrawal penalties. These changes would ensure the product remains accessible and fair for all savers, regardless of whether they also contribute to a workplace pension.
8. Should the Lifetime ISA house price cap be raised in line with inflation, or removed?
The Lifetime ISA house price cap should at the very least be raised in line with inflation, but there is a strong argument for removing it altogether. As it stands, the £450,000 cap has not kept pace with the realities of the housing market, especially in high-cost areas like London, where house prices have risen far faster than inflation since the LISA was introduced. This leaves many ordinary savers like myself -on an average income- unable to use the product as intended, despite years of saving responsibly.
When I took out my Lifetime ISA in 2017, I was living in xxxxxxx, where the £450,000 property price cap felt reasonable at the time. I didn’t know then that my career as an architect would bring me to London, where house prices are far higher. Now, as I try to use my savings, I’m finding that the cap excludes most properties in the area I wish to live and work in.
Raising the cap in line with inflation would ensure the LISA remains relevant in the face of rising house prices. However, inflation alone doesn’t fully account for regional disparities or the rapid pace of housing market growth in certain areas. For a fairer and more effective solution, the government could consider removing the cap altogether or implementing regionally adjusted caps that reflect local housing markets. This would allow the LISA to support a broader range of savers without penalising those who live in areas where house prices are inherently higher.
Ultimately, the goal of the LISA is to help first-time buyers achieve homeownership. Without adjustments to the cap, the product risks excluding exactly the kind of hardworking, average earners it was designed to help.
9. Should the annual Lifetime ISA limit be raised from £4,000?
For those first-time buyers like me, who are saving while balancing rent and living costs, being limited to £4,000 annually feels increasingly inadequate when trying to reach the deposit required for even a modest property.
Perhaps the government bonus could be capped at £1,000 annually, but the additional amount an individual can put in could be increased to the annual ISA cap of £20,000.
As it happens, I have diversified my savings and investments to ensure I am not exposed to risk. I have never used my LISA to deposit the full £4,000 annually. Rather, recently, given the circumstances around the withdrawal penalty and the increasing likelihood that this will penalise me, I have in fact been depositing very small sums in my lifetime ISA. I would have been maxing this out had I known the property price limit would always rise with inflation, compounding my savings. I might have been closer to my deposit savings had I felt more secure about the future of the LISA product.
10. Should the Lifetime ISA be reformed in any other way?
Yes, the Lifetime ISA (LISA) should be reformed in several other ways to make it a more effective and fair tool for first-time buyers and savers. Here are a few key areas for improvement:
I. Introduce Regional Price Caps
The current £450,000 property price cap is a one-size-fits-all approach that does not reflect the stark regional disparities in the UK housing market. For example, in high-cost areas like London, the cap excludes a significant portion of the housing market, leaving average earners like me unable to use the product as intended. Introducing regionally adjusted price caps would make the LISA more accessible for people across the country, tailoring it to local housing markets.
II. Reduce or Remove the Withdrawal Penalty
The 25% withdrawal penalty is overly punitive, especially in cases where savers cannot use the funds for their intended purpose due to circumstances outside their control, such as being priced out of the housing market. While it is reasonable to reclaim the government bonus if the funds are withdrawn for non-qualifying purposes, penalising savers by taking back part of their own contributions feels unfair. Reforming the penalty, such as lowering it to 20% or waiving it in specific situations, would provide savers with more flexibility without discouraging responsible saving.
III. Raise the Annual Contribution Limit
The £4,000 annual contribution limit is outdated given the current housing market. Raising this limit would allow those who are financially able to save more toward their first home or retirement. This change would be particularly helpful for those nearing the LISA’s age cut-off of 40, giving them more time to make substantial progress toward their goals.
IV. Increase Age Eligibility
The current age limit of 18 to 39 excludes those who may start saving for a home or retirement later in life, particularly those who change careers, face financial challenges, or start families. Extending the eligibility age would make the LISA accessible to a broader range of savers and reflect the reality that people’s financial journeys are often non-linear.
V. Allow Partial Withdrawals Without Penalty
Under the current rules, savers must withdraw the entire LISA balance to buy a home, and any withdrawal for non-qualifying purposes incurs the full 25% penalty. Allowing partial withdrawals without penalty for specific life events or emergencies, such as health issues or redundancy, would make the product more flexible and responsive to real-life needs.
VI. Introduce More Transparent Communication
Many savers are unaware of the limitations of the LISA, such as the property price cap and the withdrawal penalty, when they first open the account. Improved education and clearer communication from providers and the government would help ensure savers fully understand the product and can make informed decisions about their financial planning.
By implementing these reforms, the Lifetime ISA would better serve the needs of ordinary savers, making it a more effective tool for both first-time buyers and retirement planning. Without these changes, the LISA risks excluding those it was designed to help, particularly in areas where housing affordability is already a significant challenge.
January 2025