"More than 185,000 people have already been fined to the tune of £127 million for daring to withdraw their own money."
- Stuart Cheetham, CEO of MPowered Mortgages
More than 185,000 Lifetime ISA (LISA) savers have been fined £127 million for making unauthorised withdrawals of their money, according to a Freedom of Information request by MPowered Mortgages.
LISAs were launched in April 2017 to help first-time buyers get on the property ladder or save for a pension. Savers get a 25% Government boost when they use the funds to buy a qualifying first home and, like all ISAs, the interest is tax free.
Savers can withdraw money from their LISA if they are buying a first home, aged 60 or over or terminally ill. An 'unauthorised withdrawal' penalty of 25% of the withdrawal amount applies if cash is withdrawn for any other reason.
Furthermore, an ‘unauthorised withdrawal’ penalty also applies if savers buy a home costing over £450,000 – a cap which has been frozen for seven years.
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 jumped in value by 29.3%. Prices paid by first-time buyers soared by 42% in both Wales and North West England, and the average first-time buyer property now costs over £450,000 in four out of five London boroughs.
MPowered’s research reveals that 7% of LISA savers made an ‘unauthorised withdrawal’ in the year to April 2023, each receiving an average fine of £633, and the proportion of savers fined has more than doubled in just three years.
MPowered’s Freedom of Information request revealed that more than £4 billion is currently held in over a million LISA accounts. More than a quarter of a million new accounts are opened every year, but since launch just 12% of account holders (171,050) have made a penalty-free withdrawal to buy a home - meaning nearly nine out of 10 have either made no withdrawals or given up on the scheme and swallowed the penalty for breaking the rules.
MPowered is now calling for the next Government to overhaul the LISA rules by index-linking the property price limit to take account of rising house prices.
Stuart Cheetham, CEO of MPowered Mortgages, commented: “Lifetime ISAs were created to help first-time buyers save up to buy a home, but thousands of savers are being unfairly penalised each year for doing just this.
“More than 185,000 people have already been fined to the tune of £127 million for daring to withdraw their own money.
“The LISA withdrawal penalties are designed to ensure savers only use these accounts for what they are designed for - buying a first home or saving for retirement - but the cap on the value of property they can be used for means LISAs are increasingly unfit for purpose.
“In some parts of the country the average price paid by a first-time buyer has risen by 42% since the LISA rules were written. The average home in London already costs £500,000, and the return of rising prices increases the likelihood of LISA savers outside the capital falling foul of the £450,000 limit too.
“Forget reheating the failed Help to Buy scheme or tinkering with stamp duty, the next Government should act fast to reform the outdated LISA rules. While the LISA withdrawal restrictions are well intentioned, the property price cap needlessly penalises some savers for accessing their own money - it should be index-linked to reflect the rising tide of house prices.”
