Lifetime ISA Under Scrutiny: Calls for Reform Grow as House Prices and Penalties Impact Young Savers

Growing Pressure for LISA Reform

The Treasury Select Committee has recently published a report urging for LISA reform, ahead of an imminent general review of the ISA landscape by the government.

The Lifetime ISA (LISA) scheme, designed to help people aged 18 to 39 buy their first home or save for retirement, offers savers a 25% government boost when funds are used to purchase a qualifying first home.

Current Challenges and Limitations

A major concern is that the scheme’s £450,000 house price limit has remained unchanged since its 2017 launch, despite significant house price increases. This has resulted in some first-time buyers being unable to find suitable properties under the limit, while those purchasing homes above the threshold face penalties on their savings.

Recent data shows that one in three LISA holders would save more if the property price cap was increased from £450,000 to £600,000. This comes as UK property prices have risen by 34% between April 2017 and June 2025.

Proposed Changes and Industry Response

Key proposed reforms include:
– Scrapping the early encashment charge
– Removing age-related restrictions for over-40s
– Raising the ceiling on the maximum purchase price limit

These measures are suggested alongside broader reform of ISAs to simplify the system and remove barriers between cash saving and investment.

Impact on Savers

The current system’s flaws don’t just affect existing LISA holders – they also discourage many young people, especially from lower income backgrounds who tend to be more risk-averse, from opening LISAs in the first place.

Despite these challenges, there has been a 34% increase in customers opening Lifetime ISAs in the past year, with 80% of LISA savers earning £40,000 or less, demonstrating the product’s importance for those who need it most.

Looking Ahead

While the LISA remains on the government’s agenda, industry experts argue that now is the time for action. They suggest that small, pragmatic changes – such as increasing the property price cap and adjusting the unauthorized withdrawal penalty – would ensure the Lifetime ISA continues to deliver for first-time buyers in a fast-changing economic landscape. These are viewed not as radical changes, but as common-sense updates to improve an already beneficial product.