LISA Savings - Over 450k Limit - Save for retirement or pay penalty to overpay mortgage?

Hi there,

Really could do with some advice. My wife and I are both teachers who used the Lifetime ISA over the last 5 years to save for a first house deposit. We have around 45k saved in here between us (Skipton), including the govt bonus.

Our new house is unfortunately just over the 450k limit so we can't use the Lifetime ISA to increase our deposit without paying the 25% penalty. We're in a fortunate position whereby we can still cover the deposit and get the mortgage without using the LISA if we wish. Mortgage is about 300k.

My question is, is it better to withdraw the LISA, lose the govt bonus and pay the penalty in order to make an overpayment to decrease the size of our mortgage (reducing future interest)? Or would it be better to, if we can, leave it untouched as a stocks and shares LISA for when we reach 60? As teachers, we're automatically in the Teachers Pension scheme which is pretty generous (and obligatory) so this would be supplementary vs our main retirement savings. In reality, it's rainy day savings but knowing we'd still pay a big penalty if we ever used it.

Finding it really hard to work out the pros and cons of each - I'm 33 and my wife is 28, so it's a long time before we could use the money. Also aware (and hopeful) that the Govt could potentially reduce the withdrawal fee from 25% to 20% like it did for Covid once again.

Your combined advice and ideas would be amazing!

Thanks guys


  • edited 6 April 2022 at 2:45PM
    masonicmasonic Forumite
    20.4K Posts
    Part of the Furniture 10,000 Posts Photogenic Name Dropper
    edited 6 April 2022 at 2:45PM
    It really depends how you pay down the mortgage and how you plan to spend in retirement. It also depends on future interest rates, future inflation, stock market returns, future house prices, and your future pay. I don't think it is possible to know which option will work out better or even to have an educated guess.
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