The LISA gives you a 25% government bonus on contributions up to £4,000 per year. For under-40s, this is often a better home for spare money than overpayment.
LISA bonus applies to contributions up to £4,000/year, until age 50.
Open only if you're 18–39. Bonus paid until age 50. Withdrawals before 60 outside first-home purchase lose 25% of the total, more than the bonus itself.
A 25% government bonus on the first £4,000 you pay in each year is a guaranteed 25% uplift, before any investment growth. Over decades, that compounds into a serious difference versus overpaying a 4–5% mortgage.
If you withdraw from a LISA for any reason other than buying your first home or after age 60, you pay a 25% government penalty. Because the penalty is applied to the total including the bonus, you actually lose more than the bonus itself, roughly 6.25% of your own money on top. Don't use a LISA for anything you might need access to before 60.
If you already own your home and you're under 40, a LISA is effectively a retirement savings vehicle. The comparison is "25% guaranteed bonus plus investment growth" versus "mortgage rate in guaranteed interest savings". Even at a 5% mortgage rate, the LISA wins comfortably over long horizons.
If you're saving for a second home or any other specific goal, overpayment becomes more attractive because the LISA's access restrictions bite.
For higher-rate taxpayers, a pension usually beats a LISA on raw tax efficiency. For basic-rate taxpayers, the two are very close, the LISA's 25% bonus is mathematically equivalent to 20% tax relief, but the LISA's 25% tax-free on withdrawal (vs pension's 25% tax-free lump sum plus 75% taxed at marginal rate) often makes LISA net better.
Full rules are on GOV.UK's Lifetime ISA page, and MoneyHelper publishes an independent guide.