More people are now withdrawing money from their Lifetime ISA in penalty than using it to buy a home – a stark reversal of the scheme’s purpose. In 2024-25, 129,200 people made unauthorised withdrawals across the UK, while only 87,250 used the account to purchase a property, BBC analysis reveals.
The Lifetime ISA was launched in 2017 to help first-time buyers save for a home costing up to £450,000, offering a 25% government bonus on annual deposits of up to £4,000. But those who cannot find a property below the cap and need to cash out face a penalty of 6.25% of their savings. With the average first-time buyer in London now spending £463,000, the cap has become a trap for many.
“More Lifetime ISA savers are paying penalty withdrawals than buying homes, with London's £450k cap leaving many stranded.”
Fraser Glen, 35, and his partner Sophie Bauer, 30, both started saving into Lifetime ISAs a few years ago. After searching over 30 flats in central and east London in 2024, they realised a suitable home under £450,000 was impossible. “People may think we’re talking about luxury, big properties with big bedrooms, multiple properties – that’s not what we were talking about at all,” Fraser says. “We’re talking about one, two-bedroom flats; the costs significantly more than £450,000 if you want to live within touching distance of central London where lots of us work.”
To buy a “modest two-bedroom flat” in Tower Hamlets for £521,000, Sophie withdrew her LISA money and lost £3,500. Fraser chose to keep his savings in the account to avoid the penalty – leaving £50,000 in limbo until he turns 60, or he loses a chunk. “This is a savings tool which hindered rather than helped us, which leaves a bad taste,” he says.
Sophie points to the dilemma the policy creates: “What you’re either doing is encouraging young people to move out of London where a lot of jobs and opportunities are, and then paying huge amounts to get in on the train, or you have to cash out like we did and take the loss.”
Calvin Kern, 23, has been saving in a Lifetime ISA for two years and hopes to buy a two-bedroom property with his girlfriend before 30. Unable to afford Stratford, they now look further east to Epping or Edgware in Zones 4 and 5. The BBC’s analysis of September 2025 data shows that in 13 London boroughs the median price for all property types exceeded the £450,000 cap – leaving thousands of young savers either priced out or penalised.