Six months ago, I lost £1,462.30 of my own money. Not the government’s money, not some bonus I was never entitled to. My money.
Money that grew from my own investments, and upon which I was relying to purchase my first home.
And it’s all because I opened a Lifetime ISA (LISA) when I was 21.
When you take a quick look at the product, it looks like a godsend. It’s a tax-free savings account for 18-39 year olds. Put in £4,000 a year, get a 25 per cent government bonus then invest or save it towards your first home.
I thought I’d found a cheat code.
The trap
So I maxed it out. At age 21 I put in £4,000, then the same again aged 22 and 23. That’s £12,000 of my money, £3,000 government bonus, invested and growing. By the time I turned 28 and went to buy my first property, my pot had grown to £17,849.19.
You’re probably wondering why I stopped from age 24-28. Well, at 24, I got engaged and we started looking at properties in London.
And that’s when reality slapped me in the face.
The Lifetime ISA has a £450,000 property limit. You can only use it if you’re a first-time buyer and the property’s value is under that cap. Anything above that, you can withdraw your money, but at a 25 per cent penalty. You’d think that’s reasonable, right? Not in London.
I stopped contributing at 23 because I realised the trap I’d walked into. The product that was supposed to help me buy my first home, was about to penalise me for wanting to buy my first home.
The maths
Here’s what happens when you withdraw a LISA for anything other than your first home under £450,000, or retirement at 60: you pay a 25 per cent penalty on the total pot. “Fine,” you might think; :they give you 25 per cent, they take 25 per cent. Fair’s fair, right?”
Wrong.
- My pot: £17,849.19
- Penalty (25 per cent): £4,462.30
- Original bonus: £3,000
- What I actually get: £13,386.89
I put in £12,000. I’m getting back £13,386.89. That sounds like a gain, doesn’t it? But here’s what they don’t tell you: my investments grew by £2,849.19. That’s my growth. My risk. My returns.
The penalty doesn’t just take back the £3,000 government bonus, it takes £1,462.30 of my own money too.
Because the 25 per cent charge applies to the whole withdrawal, it claws back the bonus and part of your own pot – effectively a 6.25 per cent loss on your money.
That’s money that could go toward a deposit. Money that would still be mine if I’d put it in a normal Stocks & Shares ISA instead.
The limit
The £450,000 limit was set in 2017, when the Lifetime ISA launched. Do you know what £450,000 in 2017 would be worth today with house price inflation? Around £600,000.
But the product hasn’t moved. I’ve been priced out by a scheme designed to help me.
And it’s not just London. The average first-time buyer is now closer to their mid 30s than 20s, likely couples with children looking for family homes, not singles buying starter flats.
Good luck finding one of those under £450,000 in most of the south of England.
The request
Dear Rachel Reeves, the autumn Budget is coming. Lifetime ISAs have been frozen since 2017. They’re not helping young people get on the property ladder anymore, they’re punishing them.
That £1,462.30 haunts me. Every time I look at my new place, I think: that could have been better flooring, a nicer sofa – anything.
What needs to happen
1. Backdate the property cap
Don’t just raise it in line with house price inflation starting from today, backdate it to 2017 when the product launched, changing the cap immediately to £600,000. The property someone had their eye on in 2017 should still be affordable with their Lifetime ISA today. That’s the entire point of the product.
2. Scrap the penalty on growth
Take the government bonus back if someone doesn’t meet the criteria. That’s fair. But don’t take people’s own investment returns. That’s their money. If someone puts in £4,000 and it grows to £5,000 with the bonus, they should get their £4,000 back at minimum if they don’t use it for the intended purposes. Not £3,750.
3. Grow the limit with house price inflation
Once the limit has been refreshed to £600,000, update the ruling that means the cap moves with average house price figures. Don’t just fix the problem today, only to create the same one further down the line.
Instead, it’s just gone because I did what the government asked me to do to get onto the property ladder.
Now over to you. If you have a Lifetime ISA, check it now. Check when you opened it, check what you thought you’d buy at the time, and check what that property costs today.
I’m 28. I opened mine at 21. Seven years later, I withdrew it and paid the price for my situation changing. That £1,462.30? I needed it six months ago. I still think about it now. And I’m one of the lucky ones who can even afford to buy at all.
So, Rachel Reeves, I’m asking: fix this now. Stop penalising more and more young potential homeowners every year. Especially as they’ve done everything right.