The Treasury has officially confirmed the replacement of the Lifetime ISA (LISA) with a new financial product designed exclusively for first-time homebuyers, named the 'First Time Buyer ISA' (FTB ISA). This decision follows an admission from the government that the LISA was “not working well for many”, particularly due to its contentious 25 per cent withdrawal penalty.
Under the new framework, outlined in a consultation published on Tuesday, the FTB ISA will be available to individuals over 18 who are looking to purchase their first property. A significant change is the elimination of the withdrawal penalty, which previously applied if funds were removed for unauthorised purchases or for properties exceeding the price cap. Instead, the 25 per cent government bonus will be applied at the point of purchase, calculated solely on the amount contributed by the saver, meaning interest and investment gains will not attract the bonus.
The government acknowledged that the LISA's withdrawal charge was “putting off some savers”, preventing them from accessing the support intended for homeownership. The FTB ISA will have no upper age limit and can only be utilised when a home is bought with a mortgage, a provision welcomed by industry figures as reflecting a “more modern housing market”. Savers will not be able to transfer funds directly between an existing LISA and the new FTB ISA, and the new product will count towards the overall ISA allowance, as well as the new £12,000 cash ISA ceiling for under 65s from April 2027. Individuals can, however, use both an existing LISA and a FTB ISA for their first property purchase.
Despite these changes, critical details regarding the FTB ISA remain undisclosed. The government has yet to provide information on the level of the government bonus, the annual subscription limits, or the property price cap. Rachel Vahey, head of public policy at AJ Bell, commented that without this information, “it is difficult to judge whether this new product will be a meaningful improvement for aspiring homeowners.”
Industry experts have largely welcomed the move away from the LISA but stress that significant issues still need to be addressed. Rachael Griffin, a tax and financial planning expert at Quilter, highlighted the persistent problem of the £450,000 house price cap, which has remained unchanged since the LISA's launch in 2017. She noted that this cap has become “increasingly detached from reality in many parts of the country,” disproportionately affecting savers in expensive regions like London and the South East who face penalties if they exceed it. There is concern that the new product, as currently outlined, does not appear to tackle this issue.
Furthermore, the timing of the bonus payment has also drawn scrutiny. Brian Byrnes, director of personal finance at Moneybox, argued that paying the bonus only at the point of purchase could mean funds are not “working for customers straight away,” potentially requiring first-time buyers to save for a longer period to reach their desired deposit. Byrnes suggested that the current proposal appears “more complicated, more restrictive and potentially less valuable than the options many savers already have available,” raising questions about whether improving the existing LISA might have been a more effective approach.