The Lifetime ISA was supposed to be Britain’s answer to a simple problem: young people cannot afford houses. The government would give you 25% free money — literally free — if you saved between £2,400 and £4,000 per year. You put in four grand, they handed you a thousand. By the time you hit 60, you would have enough to buy something. Theoretically.

What actually happened is that the LISA became a very expensive emergency fund with better marketing.

The numbers are now doing something the Treasury probably did not anticipate when they designed this in 2015. More people are pulling money out of LISAs than are using them to buy homes. Not because the scheme is broken — though it is, in the way most well-intentioned government programs break under the weight of actual human behavior — but because life keeps happening while you are busy making other plans.

Someone loses a job. A relationship ends and suddenly you need deposit on a new flat by next month. A parent gets sick. A car dies. The boiler explodes. A redundancy package materializes but only if you leave by Friday. These are not edge cases. These are Tuesdays.

The LISA’s fatal flaw is that it treats “saving for a house” as if it exists in a vacuum, sealed off from the chaotic reality of having a life. In practice, a young person’s savings account is not a single-purpose vault. It is a financial emergency room. The LISA promised a 25% bonus if you could keep your hands off it until you either bought a house or turned 60. What it failed to account for was that “until you buy a house” could mean “until your partner leaves you,” “until you get made redundant,” or “until you realize you cannot actually afford a house anyway, so you might as well use this money to move to Portugal.”

When you withdraw from a LISA before hitting the magic conditions, the government takes back not just their bonus but also charges you a 5% penalty on top. So if you put in £10,000 and they gave you £2,500, and then life happens and you need the money, you do not just lose the bonus. You lose the bonus plus a fine. You get back roughly £9,250 from your £10,000. The government’s free money turns out to have been a loan with interest rates that only trigger if you fail to meet conditions you did not fully understand when you opened the account.

This is where the scheme’s design reveals its true nature: it was never really about helping people buy homes. It was about forcing people to save by making withdrawal painful. The bonus was the carrot. The 5% penalty is the stick. The entire structure assumes that young savers are the problem — that they lack discipline — rather than assuming that young people face actual financial instability.

The people withdrawing early are not irresponsible. They are people who discovered that a savings account designed to punish you for needing your own money is not actually a savings account. It is a trap with a government-approved interest rate.

Meanwhile, the people still using LISAs to buy homes are either those fortunate enough to have stable employment, family support, or the kind of income trajectory that lets them hit the property ladder before something breaks. For everyone else, the LISA became an expensive lesson in how not to design financial products: assume people will behave rationally, make the product inflexible, then act surprised when they do not.

The irony is perfect. A scheme created to help first-time buyers save for homes is being used as an escape fund by people running away from the economic conditions that made first-time home buying impossible in the first place. The government literally paid people to discover that their real problem was not lack of savings. It was that houses cost too much money.

At least they got a government bonus out of the realization. That is more than most people get from staring at the UK property market.