LISA savers hit with £633 fines as barely one in 10 manage to use account to buy home
More than 185,000 Lifetime ISA (LISA) savers have been fined £127 million for making "unauthorised withdrawals" of their own money.
The Lifetime ISA - the Government's flagship scheme designed to help people save up to buy their first home - is failing thousands of savers, according to new analysis.
More than 185,000 Lifetime ISA (LISA) savers have been fined £127 million for making ‘unauthorised withdrawals’ of their own money, analysis from the mortgage lender MPowered Mortgages has revealed.
LISAs, which were launched in April 2017 to help a first-time buyer get on the property ladder or save for a pension, help savers get a 25 percent Government boost when they use the funds to buy a qualifying first home and are a tax-efficient way to save because the interest is tax free.
Savers can withdraw money from their LISA if they are buying their first home, are aged 60 or over or are terminally ill.
If a withdrawal of money or assets is made for any other other then savers have to pay an “unauthorised withdrawal” penalty of 25 percent of the withdrawal amount.
LISA savers also have to pay the fine if they buy a home costing over £450,000 – a cap which has been frozen for seven years. This is also classified as an ‘unauthorised withdrawal’ penalty.
This £450,000 cap has become increasingly troublesome as house prices have risen dramatically in recent years with prices paid by first-time buyers soaring by 42 percent in both Wales and North West England from 2017 to 2024.
The average first-time buyer property now costs over £450,000 in four out of five London boroughs.
A Freedom of Information request from MPowered revealed that more than £4 billion is currently held in over a million LISA accounts.
More than a quarter of a million new accounts are opened every year, but since launch just 12 percent of account holders (171,050) have made a penalty-free withdrawal to buy a home.
MPowered’s research reveals that seven percent of LISA savers made an ‘unauthorised withdrawal’ in the year to April 2023, each receiving an average fine of £633.
The proportion of savers fined has more than doubled in just three years, and experts warn that thousands more could fall into the same trap as house prices start to rise again.
In March’s Budget, Chancellor Jeremy Hunt did not change the house price cap despite pleas from Martin Lewis’ to update the rules.
Stuart Cheetham, CEO of mortgage lender MPowered Mortgages, said: “Lifetime ISAs were created to help first-time buyers save up to buy a home, but thousands of savers are being unfairly penalised each year for doing just this.
“More than 185,000 people have already been fined to the tune of £127 million for daring to withdraw their own money.
“The LISA withdrawal penalties are designed to ensure savers only use these accounts for what they are designed for - buying a first home or saving for retirement - but the cap on the value of property they can be used for means LISAs are increasingly unfit for purpose.
“In some parts of the country the average price paid by a first-time buyer has risen by 42 percent since the LISA rules were written. The average home in London already costs £500,000, and the return of rising prices increases the likelihood of LISA savers outside the capital falling foul of the £450,000 limit too.
“Forget reheating the failed Help-to-Buy scheme or tinkering with stamp duty, the next Government should act fast to reform the outdated LISA rules.
"While the LISA withdrawal restrictions are well intentioned, the property price cap needlessly penalises some savers for accessing their own money - it should be index-linked to reflect the rising tide of house prices.”
