'I lost thousands in savings and my partner's money is in limbo'

Launched in 2017, the Lifetime ISA (LISA) was designed to assist individuals in saving for retirement or buying their first home, provided the property costs no more than £450,000. Under the scheme, first-time buyers can contribute up to £4,000 annually and receive a 25% government bonus. However, if savers cannot find a suitable property within the price limit and are forced to withdraw funds, they are subject to a 6.25% penalty on their savings.

With the average price for first-time buyers in London now standing at £463,000, many argue that the £450,000 cap is misaligned with the capital’s housing market realities. BBC analysis of data from September 2025 reveals the limitations of the scheme: the median LISA user could afford only the average flat in 16 of London’s 33 boroughs. The reach was even more limited for other property types, with the average terraced home being affordable in just three boroughs and the average semi-detached home in only one. No borough offered an average detached home within the LISA budget. In 13 boroughs, the median price for all property types exceeded £450,000.

Furthermore, unauthorized withdrawals have surpassed those made for home purchases. During the 2024-25 period, while approximately 87,250 people across the UK made authorized withdrawals to buy a house, 129,200 made unauthorized withdrawals. We spoke with young Londoners about how the scheme has impacted their lives.

'It hindered not helped us'

Fraser Glen, 35, and his partner Sophie Bauer, 30, began contributing to Lifetime ISAs a few years ago with the goal of entering the property market. However, after viewing over 30 properties in central and east London in 2024, they realized the difficulty of finding a home under the cap that met their requirements.

"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 explains. "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 purchase a modest two-bedroom flat in Tower Hamlets for £521,000, Sophie had to withdraw her LISA funds, resulting in a £3,500 loss. Fraser, conversely, chose to keep his money in the account to avoid the penalty, leaving £50,000 of his savings "in limbo." He cannot access these funds without a significant financial hit until he turns 60.

"This is a savings tool which hindered rather than helped us, which leaves a bad taste," Fraser says. Sophie adds, "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."

Changing plans and facing stress

Calvin Kern, 23, has been saving into a Lifetime ISA for two years, hoping to buy a two-bedroom home with his girlfriend before age 30. After finding Stratford too expensive, they have shifted their focus to Epping or Edgware, located further out in Zones 4 and 5.

"It's more expensive than I thought. We've had to change what we're looking for. It's a bit frustrating. And if anything, the prices are going to go up," Calvin says. He advocates for the removal of withdrawal penalties, noting the added pressure on those without family support. "If you don't have a safety net in London like a family... some people would be forced to take their money out and lose out on the 25%, which makes the situation even worse. London is so expensive and a lot of young people are forced to work here - having the pressure of the penalty in London and trying to make it... that can be stressful."

Despite these challenges, Calvin remains hopeful. "I think after all this time I am able to see some light at the end of the tunnel and make a plan, even if the plan is not 100% and it's not the life I imagined it would be."

A 'massive struggle' to stay under the cap

Jordan Waite, 31, directed most of his savings into a Lifetime ISA during the pandemic. In October 2025, he and his partner successfully purchased an ex-council flat in Archway for just under the £450,000 LISA limit. However, he describes the process as a "massive struggle".

Source: BBC News Generated at: 2026-06-04 05:06:33 UTC