Over £1bn of funds could be released from Lifetime ISA (LISA) products and put towards first home purchases over the next 12 months, new research has indicated.

Estimates from family mortgage broker, Tembo, have suggested this could help one in four first-time buyers get onto the property ladder.

LISA products have seen significant growth since they launched in 2018, with over half a million accounts now opened and £1.5bn of funds saved by first-time buyers.

In 2022, Tembo’s figures showed that 50,800 first-time buyers withdrew a total of £670m to put towards their first home purchase. This equated to an average withdrawal amount of £13,191 per home buyer.

One of the key benefits of Lifetime ISAs is that savers can get a 25% boost to their savings up to a maximum of £1,000 per year. The government therefore directly contributed £168m towards first-time buyer house deposits in 2022, and is estimated to contribute up to £250m next year.

“While the LISA is still supported by the government, it is a scheme that is providing many first-time home buyers with a great opportunity to save towards their deposit,” Tembo CEO, Richard Dana, commented. “Having a larger deposit puts homebuyers in a stronger position to buy, particularly in the current market, where we are seeing a reduction in low deposit mortgages.

“So, hanging in there and continuing to save, even when it seems like such an uphill struggle, does seem to be paying off for thousands of first time buyers. Many of the first time buyers Tembo helped to buy a home this year have used the proceeds of their LISA to put towards their deposit.” 

However, Tembo also highlighted that the LISA scheme may not work for everyone. The upper price limit on purchasing a house is £450,000, which means some first-time buyers, particularly in London and the South East, do not qualify for using the scheme. There were 77,000 withdrawals from the scheme that were not qualifying in 2022, which meant the tax boost was removed.

However, these were generally people who had not started saving significant amounts, with total withdrawals less than a fifth (£132m) of the amount withdrawn for first time buyer deposits – equating to an average unauthorised withdrawal amount of £1,706.

“With the average home costing seven times the average income, there is still a large affordability gap to fill for many home buyers, even when they reach the 5% deposit milestone,” Dana added.

“There are options for those who are struggling with affordability access, including family or friend supported mortgages, shared ownership or a range of emerging private Help to Buy schemes. Over 80% of the customers we help have been turned down by a mortgage broker or lender when they come to us, even when they have spent so long saving for a deposit.

“It is vital that would-be buyers know their options when setting out to buy their first home if they are to make their homeownership dreams a reality.”

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