Are Lifetime Isas still worth it?

The Chancellor has been urged to overhaul the Lifetime Isa to ensure it reflects rising house prices and does not penalise first-time buyers in the upcoming Budget. We have all the details.

Couple in their living room
Despite soaring house prices, the Lifetime Isa’s property price cap has remained at £450,000
(Image credit: © Getty Images)

If you’re considering whether now is a good time to get on the property ladder as house prices start to come down, then a Lifetime Isa could be one way to save for a mortgage deposit.

But amid concerns about house prices and exit fees, questions have been raised around whether Lifetime Isas are fit for purpose, with calls for the Chancellor Jeremy Hunt to overhaul the product in the coming Budget.

Criticisms centre on the exit penalty that savers face when buying a property worth more than the £450,000 limit, or when accessing their cash in an emergency. There have also been calls to increase the property limit - which has been frozen since the product launched in April 2017. 

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The Lifetime Isa – dubbed Lisa – was introduced by George Osborne to help young people buy a home or to save for retirement. Those aged under 40 can open the tax-free savings product, contribute up to £4,000 each tax year and receive a 25% bonus from the government. They can either save up to buy their first home, as long as the property costs £450,000 or less, or for a pension that can be accessed when they turn 60.

The product seemed popular initially: it was more generous and flexible than the Help to Buy Isa, which closed to new customers in 2019.

But seven years after it launched, is the Lifetime Isa still worth it? A lot has happened since then: house prices have rocketed by 25%, interest rates have risen sharply, and a pandemic that crushed many people’s finances has exposed an unfair penalty hidden in the Lifetime Isa’s small print. 

We explain how the Lifetime Isa works, the pressure on the government to reform the product, and whether it still makes sense to save into one if you’re looking to get onto the property ladder.


Like all Isas, the Lifetime Isa is a tax-efficient way to save money because any interest and investment gains are free from tax.

However, with a Lisa, you also get a juicy 25% government bonus worth up to £1,000 every tax year, depending on your contribution. For example, if you pay £2,000 into your Lisa in a tax year, you’ll receive a £500 top-up.

To open a Lifetime Isa, you must be aged between 18 and 39. Once you’ve opened the account, you can contribute up to £4,000 each year until you’re 50.

The money you pay in counts towards your annual Isa limit (£20,000 for the 2023-24 tax year). Like adult Isas and junior Isas, you can hold cash or stocks and shares in a Lifetime Isa, or a combination of both.

As mentioned, buying a first home worth up to £450,000 or using the money for later life (at age 60 or over) is what the Lisa is designed for. If you’re terminally ill, with less than 12 months to live, you can also access the account.

But if you make a withdrawal for any other reason, you’ll be hit with a 25% exit charge. This effectively takes the government bonus away, but also some of your own money too. For example, if £10,000 was withdrawn from a Lisa, which triggered the exit charge, the bonus would be deducted plus £625 of your own savings too.

The exit fee also applies if you try to use the cash for a property costing more than £450,000. “Anyone who exceeds the £450,000 limit, even by just £1, will be hit with the 25% exit charge on the Lifetime Isa, as their purchase will no longer be within the rules,” notes Laura Suter, head of personal finance at AJ Bell.

According to the investment platform, if someone had contributed the full £4,000 annual limit since the Lifetime Isa launched, they’d have a £35,000 deposit saved once the government bonus is added. If they then faced the 25% exit penalty, they would have to pay a charge of £8,750. It means they would end up with £26,250 in savings, £2,250 less than they contributed.

The exit fee was previously reduced to 20% during the pandemic after an outcry over its unfairness – but it reverted back to 25% in April 2021.

The number of first-time buyers using a Lifetime Isa to fund a property purchase has steadily risen each year. In the 2022-23 tax year, 56,100 first-time buyers withdrew money to buy a home, according to the latest figures from HMRC. That is an increase of 5,800 on the previous tax year. The average amount withdrawn was £13,877.

However, the number of people making unauthorised withdrawals rose by 56% to 74,650 during the tax year, meaning they were hit by the 25% exit charge. These penalties were worth a whopping £47m in total.

This could be due to the impact of the pandemic and the cost of living crisis – forcing people to raid their savings to top up their income – while the rise in interest rates has dampened demand from first-time buyers.

Wealth manager Quilter is among firms and campaigners calling for changes such as increasing the house price cap or reducing or even scrapping the withdrawal charge.

“For those who are able to afford to leave their money in the Lisa the penalty is not an issue, but in light of the cost-of-living crisis, a considerable number of people are having to dip into these savings and face losing their hard-earned money as a result,” says Rachael Griffin, tax and financial planning expert at Quilter.

“Lisas were launched in a very different economic environment, and young people are now finding it much more difficult to get onto the property ladder. Even with a substantial deposit, high house prices and interest rates are making it unaffordable for many, and at a time when money is tight, it is more likely people will need to access the funds they have locked away.”

She adds that "the generous government Lisa bonus is enough to draw people in, but the foreseeable harm of the high penalty charge punishes people for trying to make the most of it". 

Quilter says it may "also be sensible to rename the Lifetime Isa as a clean-up of the Isa brand. For example, it would be much better understood by people as a simple 'First Home Account', perhaps losing the retirement element".

It’s not just those hoping to buy a home who would benefit from a revamp of the Lifetime Isa though. Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, argued that changes could make them more appealing to the self-employed who are looking to save for their retirement.

She explained: “Reducing the early access penalty from 25% to 20% would mean people aren’t penalised for accessing their money during difficult times, which would offer real peace of mind to self-employed people worried about tying their money up. 

“Increasing the age at which you can open a LISA from 40 to 55 would help those people who become self-employed later in life.”

'Dead duck Lifetime Isas' must be fixed to stop first-time buyers being fined

Even though house prices have dropped over the past 12 months, they have still risen dramatically in recent years, meaning many people using a Lifetime Isa for their first home face being priced out of the product. 

When the Lifetime Isa launched, the average UK house price was £208,000, but it has since shot up to £257,443, according to Nationwide's house price index.

AJ Bell argues that house prices across the UK have risen by 25% since April 2017, and if the Lifetime Isa limit had increased in line with this it would sit at £562,500 today – more than £112,500 higher.

Martin Lewis, founder of MoneySaving Expert, says the freeze on the property limit has led to some young people, especially in expensive urban areas, being priced out of the Lisa benefits. He is calling on Hunt to fix "dead duck Lifetime Isas" and abolish the exit penalty.

MoneySavingExpert calculates that 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, due to the fine.

Suter at AJ Bell says the exit charge should be cut from 25% to 20%, which means the government's bonus would be clawed back, but the saver would not lose their own money. 

She also suggests increasing the property limit to £625,000, to align it with the first-time buyer stamp duty break of the same amount. 

Catherine West, Labour MP for Hornsey and Wood Green in north London has also been campaigning for the government to “urgently upgrade” the “woefully inadequate” product.

She comments: “I am acutely aware that many in my constituency will have saved through the Lisa scheme and now face the prospect of not being able to use their savings due to the rise in house prices across London.”

The Chancellor will unveil his Budget on 6 March, the final big financial statement ahead of the general election and therefore the last chance to win voters over. 

There was speculation before last year’s Autumn Statement that Hunt would take the opportunity to make Isas more attractive, and while some changes were made around the rules over how many can be opened in a single year, he resisted calls for more substantial reform. The Budget offers an opportunity to correct that. 


On the face of it, a 25% bonus on top of your savings sounds very attractive. It will boost your savings far more than if you relied on regular cash savings or stocks and shares Isa.

The key is to work out how you would feel if you weren’t able to buy your first home with the money, for example, because the property you ultimately buy costs more than £450,000, or because mortgages become unaffordable and you continue to rent. This would mean your cash would be locked up until age 60. If you withdrew the money earlier, the exit penalty would kick in.

As with all financial products, it’s important to understand the small print, and also think about your own personal circumstances. Your age, financial goals, amount you can save and attitude to risk will also be factors in deciding whether a Lisa is worth taking out.

Ruth Emery
Contributing editor

Ruth is an award-winning financial journalist with more than 15 years' experience of working on national newspapers, websites and specialist magazines.

She is passionate about helping people feel more confident about their finances. She was previously editor of Times Money Mentor, and prior to that was deputy Money editor at The Sunday Times. 

A multi-award winning journalist, Ruth started her career on a pensions magazine at the FT Group, and has also worked at Money Observer and Money Advice Service. 

Outside of work, she is a mum to two young children, while also serving as a magistrate and an NHS volunteer.