LISA withdrawals outpace home purchases: Thousands lost and funds frozen

Recent figures from HM Revenue & Customs (HMRC) indicate that early or unauthorised withdrawals from Lifetime ISA (LISA) accounts in the UK have surpassed the number of withdrawals used to buy a first home. The trend has left many savers not only losing the 25% government bonus but also suffering reductions in their own capital due to withdrawal charges.

Published data and committee reports highlight the scale: in 2023-24 the number of unauthorised LISA withdrawals was reported at around 99,650 versus 56,900 withdrawals used for home purchases. Independent reporting also points to aggregate withdrawal charges reaching into the tens of millions of pounds in recent financial years, underlining the financial cost borne by savers who accessed funds outside permitted circumstances.

Several factors help explain the rise in early withdrawals. Regional house price inflation and the fixed property cap for LISA-eligible purchases have priced some first-time buyers out of qualifying homes, forcing them to either forgo a purchase or withdraw funds and pay penalties. At the same time, economic pressures and unexpected liquidity needs have driven account holders to accept charges to access cash, exposing tensions in the product’s dual role as a vehicle for both homebuying and retirement saving.

From a market perspective, the issue primarily affects household savings behaviour and first-time buyer demand rather than broader financial markets. However, the unpredictability of withdrawals can affect mortgage demand patterns and complicate forecasting for lenders and regional housing markets. Financial service providers also face increased scrutiny over product design, customer communications and suitability of advice for younger savers.

Analysts and policymakers are increasingly discussing reforms to the LISA framework, including potential adjustments to the withdrawal charge, reconsideration of the property price cap, or the simplification of the account’s objectives. Parliamentary committee correspondence and industry commentary suggest that regulatory change or targeted policy responses could follow in the coming months to better align incentives with housing affordability and to reduce unfair penalties on savers. Stakeholders will watch HMRC and Treasury committee outputs closely for concrete proposals.