Yasmin Howbrook and her partner had modest requirements for their first house. The couple wanted a three-bedroom home: somewhere with enough space to invite friends over; a small room for Howbrook, 24, to work remotely. A home they could “grow into” — especially as they’re keen to start a family in the next few years.
Last year, they began scoping out what was available in Surrey and London within their strict budget of £450,000. Very quickly, it became apparent that there was very little on offer that ticked their boxes for that price. “Some people tell you to just buy something small and upgrade later, but I didn’t want to,” says Howbrook, adding that the couple were keen to make the most of first-time buyers’ relief on stamp duty.
Technically, Howbrook and her partner had the money for a house worth more than £450,000. In fact, they could have afforded closer to £500,000. But their hands were tied by the UK government. Howbrook wanted to use the savings diligently stashed away in her Lifetime Isa (Lisa) — a “healthy amount”, she says, “especially for two people in their early twenties at the start of their careers” — and because of that, she could only use it to contribute to the purchase of a property valued at less than £450,000.
The Lisa, launched in April 2017 by then chancellor George Osborne, set out to encourage young people to save long-term and/or get on the property ladder. Those between 18 and 39 are able to open a Lisa account where they can deposit a maximum of £4,000 a year. The government then gives account holders an annual bonus worth 25 per cent of their contributions, up to £1,000, the scheme’s USP. Excepting instances of terminal illness, savings in Lisa accounts can be accessed once the account holder turns 60, or to buy a first home.
But the challenge of this system is that the value of this home cannot exceed £450,000. If savers wish to buy a property worth more than £450,000 (or withdraw their funds before the age of 60), they incur a 25 per cent penalty charge. As this 25 per cent charge is applied to all of the money in a Lisa account, the penalty not only recovers the government bonus, but eats into an account holder’s original savings. To give an example: if a saver invested £4,000, received a bonus of £1,000 and then withdrew their savings, they would need to pay 25 per cent of £5,000 — £1,250 — and forfeit £250.
The terms have always been clear. But the landscape has changed in the nine years since the Lisa launched. Critically, average house prices have risen. According to a 2025 report by Martin Lewis, founder of Money Saving Expert, if the cap had risen in line with average house prices, it would currently stand at more than £600,000, up 35 per cent from 2017. London-based buyers are now in a particularly tight spot: figures from the trade body UK Finance show that the average mortgaged first-time buyer in London now pays just shy of £500,000.
Lisas have faced mounting criticism and now reform is on the horizon. This month, the government is holding a consultation on replacing the scheme with a new, simpler product exclusively for first-time buyers, tentatively set to launch in April 2028. HMRC has confirmed that those with Lisas can continue to use them “in line with the existing rules indefinitely”.
But the consultation on the new product must chew over some important issues. Will this new product also have a cap on the value of a property? And will it be regularly reviewed? Will the 1.3mn people with Lisas be able to transfer their savings to the new product, without a penalty? What of those who choose — or perhaps are compelled — to stick with the Lisa? Is there scope for the £450,000 cap to be uprated? As FT consumer editor Claer Barrett suggested in March, “Reviewing the problematic price cap and lessening the withdrawal penalty would be easier fixes than designing a whole new Isa.”
Howbrook got so “fed up” with the cap that she ended up changing her long-term saving plans. She decided to keep her Lisa savings intact and use separate savings stored in a regular cash Isa for her house deposit. In November 2025, she and her partner bought their first home: a three-bedroom property in west London, priced at £490,000. While she’s glad to finally be on the property ladder, she feels that the Lisa cap caused undue stress. “A lot of people start saving for their first house in their early twenties, but by the time you start looking at houses, your circumstances have often changed,” she says. “I don’t think the Lisa accommodates for that.”
Outside London, some areas remain unaffected by the cap. The average price paid by a first-time buyer in the North East stands at £180,834. According to new data from Lisa provider Moneybox, Bristol, Belfast and Sheffield were the top three cities where first-time buyers purchased homes using their Lisa product in 2025. But with the cap frozen, even slight annual price growth (it was 0.6 per cent in 2025) means more first-time buyers outside the M25 are getting dragged into issues with the cap too: written evidence submitted to the Treasury select committee’s 2025 inquiry into the Lisa featured frustrations with the cap from would-be buyers in Cambridge, St Albans and even Bristol, suggesting that while the Lisa may work well for some (such as single people or those who aren’t planning on starting families), it doesn’t work as well for others.
John, 29, began depositing his savings into a Lisa in 2019, but since then he has switched career, moved to Essex and married. Earlier this year, the couple found a family house they could imagine a future in. “We immediately put in a full asking offer at £450,000,” says John, who didn’t want to give his real name. But another couple put in a higher offer. “What frustrated me most is that I had enough money outside our Lisas to increase our offer. To spend so long saving for a goal and then have it taken away felt awful.”
Many say that the Lisa cap feels increasingly out of touch. “The average age of a first-time buyer is now 34. Entering home ownership at a later life stage means first-time buyers are asking more of their first home,” says Toby Whelton, senior researcher at the Intergenerational Foundation. “Where previous generations could [start earlier and] move up the housing ladder, the unaffordability of housing and the inefficiencies of stamp duty mean this is no longer realistic for many young people. Increasingly, a first home is also the home in which [first-time buyers] expect to raise a family.”
“The Lisa must adapt to reflect the changing needs of first-time buyers,” Whelton continues. But what exactly needs to be changed? Two things, according to Tom Selby, director of public policy at AJ Bell, one of the UK’s top Lisa providers. First, he suggests that the 25 per cent early withdrawal charge should be reduced to “20 per cent, so it only aims to pay back the government bonus”. Second, the cap should be “pegged to inflation” in order to “make the product more appealing and, crucially, simpler to explain”. An alternative, endorsed by Martin Lewis, would be keeping the cap in line with house price inflation specifically.
In New Zealand, the KiwiSaver scheme offers some lessons. Here, employees can deposit between 3 and 10 per cent of their pay into their KiwiSaver accounts, as well as make a “voluntary contribution” (the self-employed can also use the scheme by making voluntary contributions). There is no limit to the amount that can be deposited. Employers must match at least 3 per cent of employees’ contributions into the scheme. The government adds 50 cents for every $1 put in, up to a maximum of $521.43 per year. Typically, savers can only access their funds after the age of 65, but they’re also permitted to make a one-off withdrawal after three years to help buy a first home. Unlike the Lisa, there’s no limit to how much this first home can cost.
It is seen as hugely successful: in 2023-24, around 77 per cent of first-time buyers in New Zealand used their KiwiSaver savings to help them buy a home. By contrast, around 22 per cent of first-time buyers in the UK in 2024 used a Lisa. “Young people’s savings are effectively held hostage,” says Whelton. “What was designed to help first-time buyers has, in some cases, actively harmed them, particularly in London. The cap must be uprated.”
It’s telling that between the tax years 2022-23 and 2024-25, the number of individuals making unauthorised withdrawals has consistently outstripped the number of those making authorised withdrawals to buy a first house. The government has accrued £230mn in withdrawal charges in this period. “As it stands, the Lisa is not fit for purpose,” Whelton surmises.
In advance of any updates — if there are any — young first-time buyers remain constrained. Is it more sensible to limit yourself to houses under £450,000, even if you plan to upsize in just a few years? Is it smarter to pay the penalty to access your money? Or is it worth holding on until 2028, when the Lisa replacement is launched?
Every Lisa holder will have to reckon with these questions if they want to buy a home. Still, there’s always the sub-£450,000 hope: John and his wife have just had an offer of £450,000 accepted on a four-bed semi-detached property in Essex. “We’re so excited to move in,” he says. “It’s a huge relief.”
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