Lifetime ISA is still best bet for first-time buyers, says Moneybox exec

Thu, Apr 10, 2025, 11:00 PM 4 min read

For many aspiring homeowners in the UK, the journey towards getting a foot on the property ladder can feel like chasing a moving target. Soaring house prices and the ongoing cost of living crisis have made saving for a deposit harder than ever. But according to Moneybox head of personal finance Brian Byrnes, there’s one underused savings product that could make all the difference — the Lifetime ISA.

Speaking on Yahoo Finance Future Focus, Byrnes called the Lifetime ISA “an absolutely fantastic product” for those trying to buy their first home, thanks to the government’s 25% top-up incentive.

“You can put in up to £4,000 a year, and the government will top that up by 25%,” Byrnes said. “That’s £1,000 free from the government every year, on top of your savings.”

A powerful dual-purpose tool

Launched in 2017, the Lifetime ISA is a government-backed savings and investment account designed to help people either buy their first home or save for retirement. What sets it apart from traditional ISAs or savings accounts is that government bonus.

But while it can be a game-changer for many, Byrnes is keen to stress it’s not a one-size-fits-all solution.

“There are some restrictions,” he said. “The maximum property price is capped at £450,000, and you must open one before your 40th birthday. There’s also a penalty if you withdraw the money for anything other than buying your first home or for retirement.”

With house prices in London and the South East routinely exceeding that cap, there are growing concerns the product is no longer fit for purpose in some areas of the UK.

“The cap was set in 2017, and house prices have risen about 30% since then,” Byrnes said. “It hasn’t kept pace with inflation, and while it currently affects about 1% of savers — mostly in London — it’s becoming an issue in cities like Bristol and Manchester, where prices are catching up fast.”

Campaigning for change

Moneybox has been actively lobbying for changes to the Lifetime ISA to keep it relevant for a new generation of savers. Byrnes recently gave oral evidence to the UK Treasury Select Committee as part of the government’s inquiry into the product.

“We’re asking for two things,” he said. “First, update the £450,000 cap and have it reviewed annually in line with house price inflation. Second, reduce the 25% withdrawal penalty to 20%, so that people don’t lose their own savings if they need to access the funds in an emergency.”

That penalty may sound symmetrical — a 25% bonus and a 25% penalty — but in reality, the maths doesn’t quite add up for savers. With the current rules, people end up losing 6.25% of their own money if they withdraw funds early.

“During the pandemic, the government temporarily reduced the penalty to 20%, and we didn’t see a spike in withdrawals,” Byrnes noted. “So we know it’s possible to make the product fairer while still encouraging long-term saving.”

Is a Lifetime ISA a viable alternative to a pension?

While much of the focus has been on helping first-time buyers, Byrnes was also keen to highlight the Lifetime ISA’s (LISA) potential as a tax-efficient retirement savings tool — especially for self-employed workers or people who don’t benefit from auto-enrolment pensions.

“There are two types: a cash LISA and a stocks and shares LISA,” he said. “The cash version is great for those saving for a deposit in five to ten years. But for those using it for retirement, the stocks and shares Lifetime ISA is a powerful tool. It compares very well with pensions for many people, especially basic-rate or nil-rate taxpayers.”

He added that the flexibility of investment options with a Lifetime ISA is a big plus. “You can invest in equities, gold ETFs, and a wide range of assets depending on your provider,” Byrnes said. “You can’t access the funds until you’re 60 if you’re using it for retirement — but that long time horizon actually makes it a great vehicle for long-term investing.”

When considering a Lifetime ISA, savers should be aware of the eligibility criteria, potential penalties, and the product’s limitations, especially when it comes to property price caps in high-cost regions. Still, Byrnes remains enthusiastic about its potential.

"For the vast majority of first-time buyers, it’s a no-brainer,” he said. “And for those looking to boost their retirement savings — especially the self-employed — it’s an excellent addition to your financial toolkit."

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