Martin Lewis has issued a new statement following the announcement that a key rule of Lifetime ISAs will change from today, saying he is "pleased the Chancellor listened" to more than three years of campaigning on the issue. The withdrawal penalty first-time buyers are charged when purchasing homes above the Lifetime ISA's current £450,000 property price limit will be stopped, announced Chancellor John Healey yesterday (October 28). The rule change comes as a package of measures are introduced in the first Budget from Prime Minister Andy Burnham's government.
Campaign success
MoneySavingExpert.com, which was founded by Martin Lewis, called it a "major win" after "campaigning for this change for many years". Mr Lewis commented on the changes, saying: "Delighted after years of fighting for it that the Lifetime ISA (LISA) penalty for those buying a house of £450,000-plus will be reduced from 25 per cent to 20 per cent.
"In practice (as you got a 25 per cent bonus when putting money in) this means while you won't get the bonus, you'll get back what you put in, plus interest. I've long suggested this and I am pleased the Chancellor listened."
What the change means
The consumer rights activist and TV presenter continued about what it means for people with LISAs: "It means there's no risk to putting money in a LISA if you're definitely going to buy a house. As if you're priced out, and have to go above the threshold, you still get your savings and the interest, you just don't get the extra.
"This will be a great relief to many young people."
The Government has also confirmed that launch of the First-Time Buyer ISA, which will be introduced from April 2029. "The Chancellor has confirmed too that the First Time Buyer ISA replacement will go ahead, but that will take a few years, I suspect," added Mr Lewis. "The LISA will remain for now, and should still be viable even once it's closed to new starters."
Background on the LISA
MoneySavingExpert.com explains that LISAs are designed to help people aged 18 to 39 buy their first home or, much less popularly, to save for retirement. Savers get a 25 per cent Government boost when they use the funds to buy a qualifying first home.
But the scheme's £450,000 house price limit has remained frozen since it launched in 2017, despite house prices rising significantly since then, continues the explanation. It leaves some first-time buyers unable to find a suitable property under the limit, and savers buying a home that no longer qualifies are then effectively charged a 6.25 per cent penalty on their own money when withdrawing.
Mr Lewis and MoneySavingExpert.com say they have been campaigning to fix that since January 2023.
Practical impact
"The Government has now confirmed that the withdrawal penalty on the LISA will be axed from tomorrow today (October 29) for those buying homes above the scheme's limit. In practice, this will see the withdrawal charge reduced from 25 per cent to 20 per cent in this scenario," says MoneySavingExpert.com.
"It means savers using their LISA to buy homes above the scheme's £450,000 limit will lose the Government's bonus, plus any growth or interest earned from just the bonus. But they won't lose any of their own savings or any growth or interest earned on their own money."
Mr Lewis continued: "This de-risks putting money into a Lifetime ISA. The worst that will now happen is you get your money and the interest back."
In practice, LISA holders shouldn't see any change to the buying process and are advised to continue following the existing house-purchase withdrawal process through their conveyancer. The LISA provider will then deduct the reduced 20 per cent withdrawal charge and release the LISA funds to the conveyancer.
This applies to eligible withdrawals made on or after 29 October 2026, it does not apply retrospectively, warns MoneySavingExpert.com, adding "if you withdraw money for any reason other than buying a home (or at retirement), the charge for this will remain at 25 per cent".
