New report highlights opportunities to improve Lifetime ISAs – here’s our take
Recent research has provided valuable insights into how people are using the Lifetime ISA (LISA), including ways it could be improved for savers. The findings show that while the LISA is helping many on their journey to homeownership, there are opportunities to make the product even better.
At Tembo, we're passionate about empowering first-time buyers. That's why we've dug into the key findings from the research for you. So you can keep your finger on the pulse and understand how this impacts you, all from one place!
Earn up to 5.1% with a Tembo Cash Lifetime ISA
Not only does our Cash Lifetime ISA come with the market-leading 4.1% AER (variable) interest rate, but it has just got 1% better! We’re giving our Lifetime ISA savers a 1% cash bonus on the funds used towards their first home purchase through Tembo. Hurry, you need to claim the offer by the 30th September 2025 (T&Cs apply).
Lifetime ISA withdrawals for any purpose other than buying a first home (up to a value of £450,000) or for retirement (60+) incur a 25% government penalty, meaning you may get back less than you paid in.
The 25% withdrawal penalty: room for flexibility
A standout feature of the LISA is the 25% government bonus on your savings. For every £1 you save into your Lifeitme ISA, the government will top up your contributions for free with the 25% bonus - that's up to £1,000 per tax year. This has helped thousands grow their house deposits faster. However, the withdrawal penalty can cause some savers to think twice.
One in five (22%) people who don’t yet have a LISA said the withdrawal charge was a reason for not opening an account. And nearly one in three (31%) LISA holders said they would save more if the withdrawal penalty was reduced to 20%. This isn't surprising, especially given that the main reason for withdrawing from a Lifetime ISA despite the penalty was to fund emergency or unexpected expenses, or changes in personal circumstances like unemployment.
Lowering the withdrawal penalty to 20% would mean savers would only lose the government bonus, not any of their own money. This could encourage more people to start benefiting from the Lifetime ISA to make their dream of homeownership more achievable.
Updating the £450,000 property price cap for today’s market
Since the LISA’s launch in 2017, property prices have risen by 34% across the UK. While the original £450,000 cap enabled many to buy their first home, today’s market presents new challenges - especially in higher-priced areas like London and the South.
The data shows that 12% of LISA holders who withdrew funds did so for home purchases outside the LISA rules. Purchasing a home with a price tag exceeding the cap was a common cause, as well as a change in personal circumstances.
In fact, LISA holders are most concentrated in London and the South East, regions where first-time buyer prices are often already above the current cap. Modernising the price cap to reflect regional realities would ensure that even more aspiring homeowners can take advantage of the LISA’s benefits.
Encouragingly, 35% of LISA holders said they would save more if the property price limit increased to £600,000. Aligning the cap with current property trends creates more possibilities for buyers and helps bridge the gap between aspirations and reality.
What this means for you
This new research shows that the Lifetime ISA continues to be a powerful ally for savers. The 25% government bonus is unmatched when it comes to helping you grow your deposit, and choosing the right provider can take those benefits even further.
We know that saving and buying a home can be a challenge, which is why we make it easy to save towards your first home and track your progress towards your goal.
At Tembo, we’re proud to offer the market-leading Cash Lifetime ISA. Not only is our interest rate inflation-beating, but over 5 years, you'd earn over £550 more in interest vs the nearest market competitor.
Plus, as a Tembo saver, you’ll get access to our award-winning mortgage service. On average, we boost our customers' budgets by £88,000, helping to make home happen!
We've helped thousands discover their true buying budget
Experts in helping buyers, remortgagers and home movers boost their affordability, Tembo goes beyond standard comparison tables to help you discover how you could make home happen. To see what you could be eligible for, create a free Tembo plan today.
