Penalty vs. property: Why 37% of Lifetime ISA owners are settling for less

• 37% of UK Lifetime ISA owners surveyed deliberately bought a cheaper home (compromising on size or area) specifically to avoid the LISA £450k price cap penalty

• 25-34 year olds most affected as 17% say they bought - or are in the process of buying - a home over £450k, requiring 6+ months of extra saving following penalty charges

• Wales and West Midlands hit hardest as Lifetime ISA penalties delay homeownership by 6+ months

New research from our survey revealed the significant financial and lifestyle compromises first-time buyers are making to navigate the Lifetime ISA (LISA) framework. The survey of 1,000 UK first-time buyer respondents highlights a growing property trap, where the rigid £450,000 price cap is dictating the size, location, and timeline of home purchases across the country.

Launched in 2017 to help first-time buyers scale the property ladder, the LISA remains tethered to a £450,000 price cap that has not moved in nearly a decade - despite the average UK house price surging from £220,000 at the scheme's inception to approximately £278,880 in 2026*. 

The LISA Compromise: Size vs. Savings

Mojo Mortgages First Time Buyer Sentiment survey highlights that the cap is actively shrinking the ambitions of UK buyers. 

Almost 4 in 10 (37%) respondents with a LISA admitted they are deliberately looking to buy a cheaper home than originally planned, compromising on both property size and desired area specifically to avoid the 25% government withdrawal penalty. 

In contrast, only a quarter (26.4%) of respondents with a LISA reported that they were able to use their LISA as intended within the current rules without having to alter their home-buying plans.

The Cost of Crossing the Threshold

For those unwilling to compromise on their choice of home, the financial penalty does not only take 25% of the first-time buyer's LISA savings**, but it translates directly into lost time. 

Over 36% of respondents who have a LISA have bought, or are looking to buy, a home exceeding the £450,000 limit. To cover the resulting LISA penalty and price difference:

• Over a fifth (21%) of LISA owners required at least three months of additional saving.

• Over 15% of LISA owners reported that the penalty forced them to save for six months or longer.

Young Buyers and Regional Hotspots Hit Hardest

The 25-34 age demographic - the core of the first-time buyer market - is bearing the brunt of these restrictions. Of those who own a LISA, nearly 17% of this group reported having to save for an extra six months or more after accepting the penalty to secure a home over the cap.

Regionally, the impact is severe in areas where prices have outpaced the cap. Buyers in Wales, London, and the West Midlands are reported as the worst affected.

Revealed: Top 3 regions where first-time buyers with a LISA have had to save 6+ months longer due to LISA penalties:

On a city level, Edinburgh has the highest percentage of first time buyers with a LISA who have experienced a 6+ month delay in home buying due to penalties (23%) followed by Manchester (19%) and Sheffield (19%). 

John Fraser-Tucker, Head of Mortgages at Mojo Mortgages, commented:

"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. We are seeing a significant 'penalty tax' on aspiration, forcing first time buyers to delay their dreams by half a year or more just to exit a scheme that was designed to support them.

"For anyone navigating the 2026 housing market, the right advice is just as critical as the right rate. By consulting with a free expert mortgage advisor, buyers can look beyond the hurdles and identify a clear, personalised path to homeownership. Our goal is to replace the stress of the 'property trap' with genuine excitement, providing not only the most competitive deals but the lifelong financial literacy needed for every remortgage and future move to come."

Disclaimer note: Your property may be repossessed if you do not keep up repayments on a mortgage or any debt secured on it.

Survey conducted by Censuswide on behalf of Mojo Mortgages in April 2026. Sample size: 1,000 UK first time buyers (UK customers in the market, actively in the buying process and those who have bought in the last 12 months). Percentages have been rounded to the nearest whole number. 

Note: 31% of total respondents reported they did not have a LISA. The data above is the percentage of respondents who do/did have a LISA.

*The Lifetime ISA was launched on April 6, 2017. According to the ONS UK House Price Index for March 2017, the average UK house price was £216,000, rising to approximately £223,000 by mid-2017. The figure of £220,000 is widely used in financial journalism (such as the Financial Times and MoneySavingExpert) as the rounded benchmark for the inception price. 

For the 2026 Figure (£278,880): This is based on the ONS April 2026 Housing Market Update and recent mortgage lender indices from Nationwide and Halifax.

**25% penalty includes government bonus, own savings and any interest accrued. This is largely considered to be the penalty of government bonus earnt + 6.25% of remaining balance. 

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