The lifetime ISA (LISA) is increasingly constraining first-time buyers (FTBs), with almost 40% of LISA holders choosing cheaper or smaller homes, or relocating to less desirable areas, to avoid the scheme’s 25% withdrawal penalty, according to new research from Mojo Mortgages.

The survey of 1,000 UK FTBs found that more than half (50.5%) believe LISA rules and penalties have negatively affected their home-buying journey. Around 37% of LISA owners said they had deliberately lowered their property expectations to remain within the scheme’s £450,000 purchase limit, while only 18% were able to use a LISA without changing their original plans.

Introduced in 2017, the LISA’s £450,000 property price cap has remained unchanged despite significant house price growth over the past decade. As a result, many buyers are finding themselves caught between paying a penalty to access their savings or compromising on their ideal home.

For those purchasing above the cap, the financial impact often translates into delays. More than a third of LISA holders surveyed said they had bought, or planned to buy, a property exceeding £450,000. Among them, 21% needed at least three additional months of saving to offset the penalty, while more than 15% reported delays of six months or longer.

The burden is particularly pronounced among buyers aged 25 to 34, with nearly 17% of LISA holders in this age group needing to save for at least six extra months after incurring the penalty. Regionally, Wales, the West Midlands and Greater London were identified as the areas most affected, while Edinburgh, Manchester and Sheffield recorded the highest proportions of buyers facing lengthy delays after exceeding the threshold.

Mojo Mortgages argued that the LISA, originally designed to support first-time buyers, is becoming increasingly out of touch and misaligned with today’s housing market, with outdated limits forcing many aspiring homeowners to compromise on property choice, location and purchase timelines.

"The LISA was a vital lifeline when it launched, but its rules are now increasingly out of step with the 2026 housing market," said John Fraser-Tucker, head of mortgages at Mojo Mortgages. "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."

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