The government has today confirmed the introduction of the new First Time Buyer ISA from April 2029.
The product will replace the Lifetime ISA (LISA) for new savers, allowing contributions of up to £4,000 a year with a 25% government bonus, paid on withdrawal, towards the purchase of a first home worth up to £450,000. The maximum value of the bonus will be capped at £20,000.
Existing LISA holders will be able to continue contributing to and using their accounts under the current rules. In addition, the government will reduce the withdrawal charge for existing LISA holders who use their savings to purchase a first home above the £450,000 property price cap.
From midnight tomorrow, the withdrawal charge for purchases of properties above the LISA property price cap will be reduced to 20%. The charge for unauthorised withdrawals will remain at 25%.
The government's Budget documents state: "In recognition that some Lifetime ISA holders may wish to purchase a property above the £450,000 property price cap, the government will from 29 October 2026 allow Lifetime ISA funds to be withdrawn for such purchases which otherwise meet the qualifying rules, with a reduced withdrawal charge of 20%, ensuring the value of individual contributions is protected if the value of the property is above the price cap."
Paula Higgins, CEO of HomeOwners Alliance, commented: “We welcome the removal of the additional penalty for Lifetime ISA savers buying a home above the £450,000 limit. People saving responsibly for their first home should not lose part of their own savings simply because local property prices exceed the cap.
“However, it is disappointing that the £450,000 property price cap will remain unchanged for both existing Lifetime ISAs and the new First Time Buyer ISA, which will replace the LISA for new accounts from April 2029. Londoners buying above that threshold will continue to miss out on the government purchase bonus.
“The cap should reflect London’s housing market, rising to £500,000 in outer London boroughs and £650,000 in inner London boroughs. This is consistent with what will likely be the property price caps for the Your First Home Scheme. It should then increase annually in line with inflation to protect future buyers and prevent the value of this support from being steadily eroded.”
Rachael Griffin, tax and financial planning expert at Quilter, said: “Reducing the Lifetime ISA withdrawal charge from 25% to 20% for first-time buyers purchasing above the £450,000 cap addresses a longstanding unfairness. Removing the government bonus is one thing but eating into someone’s own savings is another.
“A new First Time Buyer ISA focused squarely on homeownership, without an upper age restriction or punitive withdrawal penalty, is a welcome attempt to fix some of the Lifetime ISA’s flaws. But retaining the £450,000 property cap risks carrying an old problem into a new product. A lifetime limit on the government bonus could be a fairer way of controlling costs than a rigid house-price ceiling that becomes increasingly outdated as property prices rise.
“The government should also be careful not to discard what worked well with the Lifetime ISA. Paying the bonus monthly means it can earn interest or investment returns alongside the saver’s own money as their deposit builds. If the new ISA instead pays the government bonus only when someone buys their home, savers lose that benefit.
“Protecting existing Lifetime ISA holders is welcome, but continuity must not become complexity. Existing savers should be able to transfer into the new account without penalty where it better suits their needs, rather than having to navigate three generations of home-buying ISAs with different rules. Consumers and providers will also need clarity over how the new account interacts with Your First Home and confidence that the latest scheme will have longevity."
