LISA0200

Written evidence submitted by Anonymous

I welcome the Treasury Committee’s call for evidence on the Lifetime ISA (LISA) and appreciate the opportunity to contribute to this important discussion. I am writing as a first-time buyer affected by the £450,000 property price cap and the unfair withdrawal penalty, both of which significantly hinder the scheme’s ability to support young people in today’s housing market.

Reason for Submitting Evidence

I am submitting this evidence because, like so many young people, my partner and I have spent years working hard, saving diligently, and doing everything "right" in the hope of finally buying a home. But despite careful planning, we have found ourselves restricted by outdated rules that no longer reflect the reality of the housing market.

We have lived in Greenwich for five years—this is our home. It’s where we have built our community, established our careers, and imagined our future. We want to stay here, not just because we love the area, but because moving would mean uprooting our entire lives. Yet, despite having saved responsibly, we are now facing a significant challenge: the £450,000 Lifetime ISA cap has not kept pace with house prices, meaning we are unable to buy even a modest, family-sized home without either making major sacrifices or paying a 25% penalty to access our own savings.

For many in my generation, the COVID-19 pandemic further delayed homeownership, as economic uncertainty, job insecurity, and rising living costs made it harder to save, while house prices continued to rise faster than wages. Like many young people, my partner and I had to push back our original home-buying timeline, renting for longer and saving for an extended period. Now, as we are finally in a position to buy, we are encountering a scheme that does not reflect the reality of today’s market—particularly in London, where the LISA cap assumes first-time buyers are purchasing small "starter" properties that are no longer a realistic option. House prices and high rents have forced people to wait longer to buy, meaning that by the time we can afford a home, we need one that will support a future family and provide long-term stability—not a tiny flat we will outgrow in two years.

Unlike those with family financial support, we cannot simply bypass these restrictions. The current system limits opportunities for those without generational wealth, making it harder for people like us to secure a future in the places we live and work. After years of doing everything right—studying, working, saving, planning—it is frustrating to find that a scheme intended to support first-time buyers is, in practice, creating barriers.

I am submitting this evidence because this policy is no longer fit for purpose, and unless it is reformed, it will continue to fall short of its original goal of helping young people get onto the property ladder. Raising the cap and reviewing the withdrawal penalty would ensure that the Lifetime ISA remains an effective and fair route to homeownership.

Key Issues with the Lifetime ISA Scheme

1. The £450,000 Cap Does Not Reflect Market Reality

The LISA property price cap has remained frozen at £450,000 since 2017, despite substantial increases in house prices. In high-cost areas like London and the South East, this outdated cap renders the scheme unfit for purpose.

• The average house price in London is now £511,000 (ONS, November 2024), significantly exceeding the LISA cap.

• Rightmove data indicates an average property price of £586,680 in Greenwich over the past year.

• Flats alone in North Greenwich sold for an average of £538,244 in the same period (Rightmove, 2024).

These figures illustrate how buying a property under the LISA limit in London is increasingly unrealistic. The cap forces first-time buyers into a dilemma:

• Relocate away from their jobs and communities, or

• Face a severe financial penalty for purchasing a home above the threshold.

This issue disproportionately impacts those without family financial support, who rely on the LISA’s government contributions to make homeownership viable. More privileged buyers, who can access parental assistance, are not constrained by the cap and can purchase homes at market rates without penalty. The LISA, therefore, fails those it was designed to help—aspiring homeowners from less affluent backgrounds.

2. The Withdrawal Penalty is Unfairly Punitive

The 25% withdrawal penalty on LISA savings actively punishes savers who need to access their own money for a home that exceeds the cap.

• Unlike the Help to Buy ISA (which simply withholds the bonus if a home is above the threshold), the LISA penalises savers by taking part of their own contributions.

• For example, if someone has £40,000 in a LISA (including £10,000 in government bonuses) and needs to buy a £475,000 home, they would be forced to pay a £10,000 penalty—losing £2,500 of their own savings.

This creates an impossible situation: first-time buyers who saved responsibly for years, following government guidance, are now being financially penalised simply because house prices have risen faster than the policy has kept pace. Instead of helping, the withdrawal rules trap savers in a no-win situation.

Suggested Reforms

To restore fairness and effectiveness to the LISA scheme, I urge the Treasury to consider the following changes:

1. Increase the £450,000 cap to align with house price growth, particularly in high-cost areas like London. This could be done by:

• Introducing regional caps, similar to the Help to Buy scheme.

• Indexing the cap to inflation or ONS house price data.

2. Remove or reduce the 25% withdrawal penalty, so that first-time buyers who exceed the cap do not lose their own savings. At the very least:

• The penalty should only claw back the government’s bonus, not the saver’s own money.

• A partial penalty system could apply for properties slightly above the cap.

Conclusion

The Lifetime ISA was introduced as a savings tool to support first-time buyers, yet its rigid cap and withdrawal penalty now act as barriers rather than enablers of homeownership.

Updating the LISA cap in line with house prices and removing punitive withdrawal rules would restore the scheme’s intended purpose: supporting hard-working young people in their efforts to buy a home, not penalising them for market conditions beyond their control.

I appreciate the Treasury Committee’s attention to this matter and hope that these points will be seriously considered in the review.

February 2025