LISA0160

Written evidence submitted by Anonymous

My name is xxxxx. I'm 27 and I opened a LISA account just before covid, when I was 22. I was born in Kent and currently rent a flat in Bromley (Kent whilst I was growing up, but now also a London borough). I opened a LISA as a prospective first time buyer. In short, my current position with my LISA account makes me feel trapped, confused and worried for the future. The scheme is no longer fit for purpose. 

The concept of the LISA is good and government support is invaluable. However, the government’s failure to keep the LISA cap in line with inflation, and the penalty charges to withdraw, are the product’s downfall. 

I would firstly urge you to read this article by Martin Lewis: https://www.moneysavingexpert.com/news/2024/09/lifetime-isa-fines-costing-first-time-buyers/  

As Martin notes, average UK property prices increased by 33% since the scheme started. A rate of inflation that has not been reflected, even in the slightest, in the LISA scheme rules. Since the scheme opened we have faced a global pandemic, major cost of living crisis and soon the changes in stamp duty for first time buyers too. Current estimates show that prices are expected to rise another 2.5-4% in 2025. 

When I opened my LISA account, I had everything mapped out: I’d looked at house prices for typical ‘first time homes’ in my area, and when these fell below the £450,000 ISA limit, I planned how I would raise a 10% deposit (with the help of the LISA) and how much I would need to earn to mortgage the rest. The LISA made sense, so I moved my money over from a Help to Buy that had previously been set up for me. I was aware of the consequences of withdrawing the funds early. However, for me this risk translated to not being able to take out the funds out for an emergency or just to spend it on anything other than buying a house. The risk that the funds would be stuck because house prices would increase to a point where the LISA no longer covered it was unfathomable. 

The government website states that: You’ll pay a withdrawal charge of 25% if you withdraw cash or assets for any other reason (also known as making an unauthorised withdrawal). This recovers the government bonus you received on your original savings.

But this simply isn’t true. Because 25% of the amount in the savings account includes 25% of any interest earned to date. This means that the government will recover their bonus, as well as 25% of any additional funds on the account; therefore profiting from people’s savings and inability to use the funds for the original intended purpose (something which 99% of people that have opened the account never intended to be the position in the first case). 

The statement “This recovers the government bonus you received on your original savings.” is incorrect and if this was the purpose, then it should be changed to state that You will lose the bonus awarded to you by the government. This is fair. I agree that if you are not using the funds to buy a home (the government’s intention) then you shouldn’t receive the bonus. But why should you have to pay a further penalty and lose money you’ve spent so long trying to save. Our government is supposed to support us, not profit from our downfalls. 

Now, the same house price I’d mapped out when I opened the account is over 25% more. It is now impossible to buy a house in Bromley for less than £550k. 

Granted, I could move elsewhere but what is the point in moving away from my family and friends just to become a homeowner? To me that isn’t worth it; I would rather rent forever! But to rent instead would mean paying a penalty on my hard earned savings. 

I now find myself in a position where I’ve put my plans to buy a house on hold in the hope that something changes. Each year I’m faced with the same dilemma: continue to keep putting money into the LISA in the hope that the price cap is raised and I will end up being able to use the money, but also risk not being able to access that money / have 25% of it penalised if I can’t use it to buy a house? 

I’m grateful that the government is finally going to review the scheme (something which has been ignored in so many financial reviews to date) and hope that the scheme rules change to increase the house price cap (or remove it altogether; if you think about it, the government assistance is capped at £4,000 per year so what does it matter how much the overall house costs?) and remove the penalty charge (limit it to forfeiting the government bonus only). 

Government support shouldn’t be a ‘risk’ - it’s not a betting account, planning for your future shouldn’t be a gamble. 

If all else fails, just let existing customers exit the scheme, forfeit the government bonus without an additional penalty charge and start again. 

Please do something! Thank you for taking the time

February 2025