Martin Lewis urges Government to change unjust Lifetime ISA rules that cost first-time buyers £1.8 million last year
First-time buyers paid the Government an estimated £1.8 million in fines for taking money out of their Lifetime ISAs (LISAs), new figures for the 2023/24 tax year show. MoneySavingExpert.com founder Martin Lewis is renewing calls to the Government to stop those who are using LISA savings for their intended purpose – buying a first-time property – having to pay these unjust penalties.
Prefer to listen rather than read? Martin covered everything you need to know about LISAs – including the key change the Government must make – on his recent podcast.
The segment starts at 20 minutes and 25 seconds in – listen via:
• BBC Sounds
• Spotify
• Apple Podcasts
• Or anywhere you like to listen to Martin
LISAs are designed to help people aged 18 to 39 buy their first home or, much less popularly, to save for retirement. Savers get a 25% government boost when they use the funds to buy a qualifying first home. They're a powerful product – still beneficial to many – which can give a huge boost to first-time buyers' savings.
Yet the LISA house price limit has been frozen since the product launched in April 2017. Since then – even after recent corrections – there has been substantial growth in property prices. This has led to some young people, especially in expensive urban areas, being priced out of the benefits – and, worse, having to pay a fine to access their own money.
Those buying above the current £450,000 maximum who withdraw their deposit from a LISA only get back £937.50 per £1,000 they saved.
First-time buyers using LISAs paid the state £1.8 million in fines last year
In the 2023/24 tax year, savers were fined approximately £15 million of their own money when withdrawing funds from their LISA – the largest annual amount since LISAs launched, and up by more than 50% from the previous year.
HMRC doesn't record why savers are withdrawing funds, and some of this will likely be due to people needing to access their cash because of the cost of living crisis.
However, survey data from Moneybox – one of the top-paying cash LISA providers – indicates that just over one in ten (12% of) LISA savers who made a full penalty withdrawal in February 2023 (the latest available data), did so to buy a home over the £450,000 limit.
This means savers paid an estimated £1.8 million in penalties last year for using their LISAs for what they are intended to do. This is unjust and must change. That's why we're calling on the Government to – at the very least – reduce the penalty for those who are buying a first-time property above the threshold to 20%. So you wouldn't get the bonus, but you also wouldn't have to pay a fine to the state for accessing your own money.
Martin Lewis: 'Young people are being fined by the state for doing what the state wanted them to do'
Speaking on his recent podcast, Martin said: "Many people, especially in London and the Southeast, and other urban metropolitan areas, have been priced out by house prices going up.
"So they saved – as the Government told them to – for their first-time property, but their property is now above £450,000. To take the money out, even to buy a first-time property, which is what this product is for, they are facing a penalty, a substantial penalty.
"There is a justice issue here. Many of our young people who've done what the state asked them to by saving for a first-time property in a Lifetime ISA are being fined by the state for accessing the money to do what the state wanted them to do. That seems to me to be unjust."
LISA saver: 'You take one step forward using the scheme but then you're worse off and taking two steps back because of the rules'
We've spoken to many MoneySavers who back our calls. Some have forfeited £100s or even £1,000-plus to use their LISAs to buy properties for more than £450,000.
Verity Carter Johnson (pictured) from south west London is worried the same will happen to her – to the point where she's now stopped saving into her LISA altogether. She's instead putting spare cash into a top savings account in the hope the Government might change the LISA rules before she comes to buy.
The 27-year-old, who works in the commercial department of a major telecoms firm, has even considered buying outside of London, but says she's found property prices in commuter towns are often over the LISA limit anyway, plus she'd have to factor in increased travel costs too.
Verity told MSE: "The Government's 25% LISA top-up was so big that so many of us took out these accounts. At the time I got mine, I didn't think I'd be buying somewhere over the scheme's cap, so I didn't think too much about the withdrawal penalty.
"But I don't think anyone I know has managed to find somewhere to buy within the scheme's limit. We all have alerts set up for properties costing less than £450,000 but they don't often come up – my friend got a notification and it was for a parking space, it wasn't even a house. Another friend bought a narrowboat as she said that was the only way she could afford to own a home in London.
"I think the property price threshold should be increased and the penalty should be removed. If you're taking money out of a LISA to buy a property that's over the cap, I think that's really unfair when it's supposed to be a scheme to help first-time buyers. You take one step forward by using these schemes, but then you're worse off and taking two steps back because of the rules."
Why the LISA limit should be increased
Our secondary ask, which we've been calling for since the launch of our campaign in January 2023, is for the £450,000 LISA limit to be raised to catch up with average property price growth and then be index-linked to house prices thereafter. This could even be done on a regional basis. This is needed because:
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Average UK property prices increased by 33% between April 2017, when LISAs launched, and July 2024 – the latest available data from the UK House Price Index.
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Average first-time buyer property prices in GB have increased by 32% in the same period, according to the UK House Price Index. The UK House Price Index does not hold data on UK first-time buyers, as it does not collect first-time buyer data from Northern Ireland.
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18 March 2025
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