A New ISA for First Time Buyers – What It Could Mean For You

The Government wants to replace the Lifetime ISA with a new savings account built specifically to help first-time buyers get onto the property ladder. Some of the big details, including the bonus and the property price limit, are still being worked out.1 

Under plans announced by HM Treasury, first-time buyers could soon have a more flexible way to save for a deposit. 

The proposed First Time Buyer ISA would replace the Lifetime ISA for new savers, and would be open to first-time buyers aged 18 and over, with no upper age limit.  

The key difference is when the bonus lands. With the Lifetime ISA, the Government bonus is paid into the account as you save. With the new account, it would only be added when your savings are actually used to buy an eligible first home.  

That matters, because it means if your plans change, you could withdraw your own money without facing the current Lifetime ISA withdrawal charge. 

Worth saying clearly though, this is still at consultation stage and the finer details are not yet published. The final bonus, savings allowance, property price cap and launch date are all still to be confirmed.  

Why is the Lifetime ISA being replaced? 

The Lifetime ISA launched back in 2017 and can be used either to buy a first home or to save for later life. 

Right now, savers can put in up to £4,000 a tax year and get a 25 per cent Government bonus, worth up to £1,000 annually. The account has to be opened before you turn 40, and you can keep contributing until age 50.2 

The problem is the withdrawal charge. If you take money out for anything other than an eligible home purchase, retirement after 60, or certain exceptional circumstances, you get hit with a 25 per cent charge, and that charge doesn’t just claw back the bonus. 

Here’s the maths. Someone paying in £4,000 gets a £1,000 bonus, taking the balance to £5,000. A 25 per cent charge on that £5,000 removes £1,250, leaving the saver with £3,750. So you lose the full £1,000 bonus, plus £250 of your own money.3 

The Treasury Committee has also flagged that combining a homebuying product with a retirement product in one account makes the Lifetime ISA needlessly complicated, and can push people towards savings or investment choices that don’t actually suit them.4 

How would the new account work? 

Under the current proposal, the First Time Buyer ISA would be open to UK residents aged 18 and over saving for their first home, with no upper age limit, reflecting the reality that plenty of people buy their first property later in life. 

Savers would be able to choose cash or stocks and shares versions, with interest and eligible investment growth staying tax free. 

The Government bonus would be worked out on the net amount paid in, meaning your total contributions after any previous withdrawals, not on any interest or investment growth. 

To actually qualify for the bonus, the account would need to have been open for at least 12 months, the property would need to be your first home and main residence, the purchase would need to use a regulated mortgage, and the property would need to fall within the scheme’s price limit. 

Cash buyers and anyone using unregulated financing wouldn’t qualify for the bonus.1 

Would the bonus still be 25 per cent? 

That hasn’t been decided yet. 

The Government is consulting on how three things fit together: how much someone can save each year, the percentage bonus the Government pays, and the maximum property price you can buy. 

Right now, the Lifetime ISA offers a 25 per cent bonus on contributions up to £4,000 a year, for properties up to £450,000 anywhere in the UK. 

The new account could look quite different. The consultation floats the idea that a lower annual savings allowance or property price cap might support a higher percentage bonus. Nothing has been confirmed, so don’t assume the existing £4,000 allowance, 25 per cent bonus or £450,000 limit will simply carry over. 

What happens to existing Lifetime ISAs? 

If you’ve already got one, you won’t be forced to close it. 

The Government says existing holders can carry on saving into their Lifetime ISA under the current rules, indefinitely. You’d also be able to open a new First Time Buyer ISA and use money from both towards the same property purchase, though you’d only be able to pay into one or the other within the same tax year, not both. 

You won’t be able to transfer Lifetime ISA funds directly into the new account, because you’ll already have had a Government bonus on that money. 

Should first-time buyers stop paying into a Lifetime ISA? 

Not necessarily. 

The new account hasn’t launched, and some of the details that matter most are still up in the air. A Lifetime ISA can still make sense for someone who understands the restrictions and expects to buy a qualifying property. 

But go in with your eyes open. Understand the withdrawal charge, the £450,000 property limit, and the requirement for the account to be open at least 12 months before it can normally be used towards a first home.  

It’s also worth thinking about whether you might need access to the money for something else, and whether cash or stocks and shares suits your expected timescale. With a stocks and shares ISA, investments can fall as well as rise, so you could get back less than you put in, particularly if you need the money over a shorter period. 

The proposed First Time Buyer ISA could get rid of one of the most frustrating parts of the current Lifetime ISA, letting savers access their own contributions without a penalty if life doesn’t go to plan. Removing the upper age limit could also open up Government supported deposit saving to a wider group of people. 

But how good this scheme actually turns out to be will come down to the final bonus, allowance and property price cap. The existing £450,000 Lifetime ISA limit already causes headaches in higher priced areas, so until the final rules are published, don’t build long term plans on the assumption the limit will rise or that the new account will be more generous. 

The Government’s consultation closes on 18 August 2026, with the final design and timetable to follow. 

Saving your deposit is only one piece of the puzzle. It’s worth reviewing your likely mortgage affordability, credit commitments, purchase costs and deposit options before you start house hunting properly, and we’re happy to talk you through all of it.