More than 185,000 Lifetime ISA (LISA) savers have been fined £127 million for making ‘unauthorized withdrawals’ of their own money, according to official data collected by mortgage lender MPowered Mortgages.
Stuart Cheetham and Richard Fitch
The new analysis, which follows a Freedom of Information request, comes at a time when helping people save for a home is a key issue focused on by politicians in the run-up to the general election.
LISAs were launched in April 2017 to help first-time buyers get onto the property ladder.
Savers receive a 25% government boost when they use the money to buy a qualifying first home, and like all ISAs they are a tax-efficient way to save as the interest is tax-free.
You can withdraw money from your LISA if you buy your first home, are over 60 or are terminally ill. However, a 25% ‘unauthorized withdrawal’ penalty applies if funds are withdrawn for any other reason.
In addition, LISA savers must pay a 6.25% penalty if they buy a house costing more than £450,000 – a limit that has been frozen for seven years. This is also classified as an ‘unauthorized withdrawal’ penalty.
The problem is that house prices have risen sharply since the £450,000 limit was introduced. Land Registry data shows that between April 2017 and March 2024, the average UK property increased in value by 29.3%.
Prices paid by first-time buyers rose by 42% in both Wales and North West England, and the average home for a first-time buyer now costs more than £450,000 in four of London’s five boroughs.
MPowered’s research shows that 7% of LISA savers made an ‘unauthorized withdrawal’ in the year to April 2023, with each receiving an average fine of £633.
The proportion of savers fined has more than doubled in just three years, and experts warn thousands of others could fall into the same trap if house prices start rising again.
MPowered’s Freedom of Information request revealed that there is currently more than £4 billion in more than a million LISA accounts.
More than 275,000 new accounts are opened every year, but since launch, only 12% of account holders (171,050) have made a penalty-free withdrawal to buy a home – meaning almost nine in ten have made no withdrawals or have given up on the purchase. plan and took the punishment for breaking the rules.
MPowered calls on the next government to urgently review the LISA rules by indexing the property price cap to take into account rising house prices.
MPowered chief executive Stuart Cheetham (pictured left) commented: “Lifetime ISAs were created to help first-time buyers save to buy a home, but thousands of savers are unfairly penalized every year for doing just this.
“The LISA withdrawal penalties are designed to ensure that savers only use these accounts for what they are designed for – buying a first home or saving for retirement – but the limit on the property value they can being used means that LISAs are becoming increasingly unsuitable for their purpose. .”
He added: “Forget reheating the failed Help-to-Buy scheme or tinkering with stamp duty; the next government should act quickly to reform the outdated LISA rules. While LISA’s withdrawal restrictions are well intentioned, the property price cap unnecessarily penalizes some savers for accessing their own money – it should be indexed to reflect the rising tide of house prices.”