by Jonathan Eida, researcher
It wasn’t supposed to be like this. When the Lifetime ISA (LISA) was introduced in 2017, taxpayers were told it would help first-time buyers get a foot on the housing ladder. With a generous 25 per cent government top-up and the promise of tax-free savings, it was sold as a smart, targeted intervention. Eight years on, it’s clear the scheme is no longer living up to expectations.
In London this week, Cost of Rent Day has arrived - 27th May - meaning the average tenant has now spent the first 146 days of the year working just to pay the rent. That’s a stark reminder of how difficult it has become to save for a home, and why LISA was supposed to be part of the solution.
But instead of adapting with the times, the policy has stagnated. Savers are stuck with outdated thresholds, shrinking real returns and inflexible penalties. It’s no wonder the Treasury Committee is now reviewing whether the LISA is still fit for purpose.
The original idea was sound enough. Save up to £4,000 a year, and the government would add 25 per cent - up to £1,000 annually - to help young people buy their first home or save for retirement. But the LISA has not stood the test of time. Inflation has risen nearly 28 per cent since 2017, meaning the £1,000 bonus is now worth just £783 in real terms. At the same time, house prices have risen by more than 25 per cent. But the £450,000 cap on eligible properties hasn’t moved an inch. In fact, had the cap risen with inflation, the cap for this financial year would stand at over £600,000. The result of the cap not increasing means that buyers - especially in London and the South East - are penalised for using their LISA on a property that exceeds the limit by even £1. Their money is effectively trapped teetering at the cliff edge.
And the penalty is no minor deterrent. If you withdraw funds for anything other than a first home or retirement, you don’t just lose the bonus - you face a 25 per cent charge on the entire pot. That’s a 6.25 per cent loss on your own contributions. For those who need flexibility, or who have had a change in circumstances, it’s punishing and inflexible.
This isn’t how the scheme was sold. What began as a measure to encourage discipline and long-term thinking has been quietly allowed to wither. Successive chancellors have failed to review or uprate the LISA’s thresholds, choosing instead to let the scheme drift into irrelevance for the very people it was designed to help.
There are arguments for maintaining an updated version of the LISA. But the fundamental issue facing first-time buyers isn’t a flawed savings product - it’s a lack of housing. No tax break or ISA tweak will fix the UK’s planning system or increase housing supply. If the government is serious about supporting homeownership, it must tackle the supply-side problems that have driven up prices: overregulation, underdevelopment and a bureaucracy that rewards inertia.
The treasury minister, Emma Reynolds, has an opportunity to fix this - not just by tweaking an outdated savings scheme, but by acknowledging the much bigger structural problem.
Homeownership is slipping further out of reach for millions. The time for small fixes has passed. If ministers are serious about helping the next generation onto the housing ladder, it’s time to act - before the ladder is pulled up altogether.