I lost £11,000 on the Lifetime ISA penalty charge – changes are too late for me

Ben Abensur saved long and hard throughout his twenties to buy his first home, putting money aside since his first job after leaving university. So it felt like a real kick in the teeth when he discovered he would lose a hefty chunk of his own money as well as a Government bonus due to a withdrawal penalty when buying a home above the Lifetime ISA’s £450,000 property-price limit. Ben, 31, who works in communications, had saved £32,000 over the course of nine years by paying in the full £4,000 ISA allowance most years. Shorts With the 25 per cent government bonus for LISAs and interest taking his total house deposit savings pot to £40,000, he thought he would have a considerable sum towards his first home. However, he and his partner Josh ended up buying a three-bedroom house in Mitcham Eastfields in London which cost £552,000. Consequently, Ben was hit with a 25 per cent withdrawal “fine” for not buying a qualifying property. To his disappointment, not only did he lose the money added each year as a Government bonus, he actually lost some of his own money that he put in. Chancellor John Healy announced in the Budget that the controversial withdrawal penalty when first-time buyers buy a home above the LISA’s £450,000 limit will no longer carry such a punishing fine. Instead, the penalty for those buying a house more than £450,000 using a LISA will be reduced from 25 per cent to 20 per cent. In practice, this will mean people will lose out on the Government bonus, but will still get back what they put in, as well as interest. For Ben, this long-awaited change has been bittersweet. “I felt very frustrated when I heard about this change to the LISA rules,” Ben told The i Paper. “It is too little too late for people like me as we have already lost our money. That money would have helped us significantly such as with being able to get a lower mortgage or even having some money to do stuff that needed doing to the house. “I feel robbed of my £11,000. The Government is very good at taking money from people, but they’re not very good with giving it back. “I feel happy for all the future first-time buyers who will benefit from this change, but I feel cheated myself.” Ben explained that he and his partner initially wanted to buy their first home near the area they were renting – in the Brixton and Tooting areas of London. However, while house hunting, they soon realised they could get a lot more for their money by venturing a bit further out. They bought the three-bedroom house in Mitcham Eastfields in January 2025, but the loss of money from the LISA left them having to borrow money to pay stamp duty and legal fees from family. “We realised we could get more for our money further out. It is not ideally where we wanted to live, but we are happy now that we have been here almost two years and are surrounded by green spaces. “It is very disappointing after you have saved hard for years and done the right thing to find out that you will lose some of that money.” Ben explained that although he had personally saved £32,000, this rose to £40,000 with the government bonus. But the penalty to access the funds took it down to £29,000 – eating into his own money. Ben ended up borrowing money from his grandparents’ business and his partner borrowed money from his family. Although they have now paid their loans back, he says it made their first year in their new home more difficult financially. The scheme’s £450,000 house price limit has remained frozen since it launched in 2017, despite house prices rising significantly since then. This has left some first-time buyers – particularly those living in London or other expensive cities – struggling to find a suitable property under the limit. The withdrawal fine effectively meant that savers were charged a 6.25 per cent penalty on their own money. Ben said: “I feel this policy should have been revised as house prices went up and the economy got harder and the cost of living increased. “It was not updated since it was introduced and when it first came out, £450,000 was probably fine for a first house. But now, especially in London, it is rare to find a house for £450,000. “I am glad things have finally changed, but it is a shame it didn’t happen in time for us.”