Almost four in 10 Lifetime ISA holders are deliberately buying cheaper homes to avoid Government penalties as growing numbers of first-time buyers find the scheme increasingly out of step with modern house prices, according to new research from Mojo Mortgages.
The survey of 1,000 UK first-time buyers found that 37% of respondents with a Lifetime ISA (LISA) had compromised on either property size or location specifically to avoid breaching the scheme’s £450,000 property limit.
More than half of those surveyed said the LISA had negatively affected their home-buying experience.
The findings add to growing criticism of the Government-backed savings scheme, which launched in 2017 to help younger buyers onto the housing ladder but has retained the same £450,000 cap despite sharp house price inflation over the last decade.
SEVERE CONSEQUENCES
Average UK house prices have risen from around £220,000 when the scheme launched to almost £279,000 in 2026, according to market data.
For buyers exceeding the cap, the consequences can be severe. Mojo Mortgages found that more than a third of LISA holders had either bought, or were attempting to buy, a property above the threshold, triggering a 25% withdrawal penalty.
As a result, 21% said they needed at least three extra months of saving, while more than 15% reported delays of six months or longer.
VITAL LIFELINE
The impact was most acute among 25 to 34-year-olds and buyers in higher-priced regions including London, Wales and the West Midlands.
John Fraser-Tucker (main picture), Head of Mortgages at Mojo Mortgages, said: “The Lifetime ISA was a vital lifeline when it launched, but its rules are now increasingly out of step with the 2026 housing market.
“When a quarter of buyers are actively choosing smaller homes or less desirable areas just to protect their savings from penalties, the ‘bonus’ has become a constraint.”
