The government has today launched a new consultation on the implementation of a new, simpler, ISA product to help first-time buyers.
Once available, this new product will be offered in place of the Lifetime ISA (LISA).
The government is withdrawing the LISA after admitting "there is evidence that the product is not working well for many".
More LISA holders have lost a part of their original savings than have used it to purchase a house. In addition, provider data shows that thousands of individuals are making multiple unauthorised withdrawals.
In 2025 the Treasury Select Committee (TSC) published a report which concluded that the product’s design was flawed. In particular, the TSC highlighted that the dual-purpose design increases the risk of consumers choosing unsuitable investment strategies and that the withdrawal charge is causing confusion, with people facing the loss of some of their capital if they withdraw funds outside the rules due to unforeseen circumstances.
How will the FTB ISA compare to the LISA?
Under the new First Time Buyer ISA, there is no upper age limit and the government bonus is paid when the funds are used to purchase a property, rather than up front.
This removes the need for a withdrawal charge and means a saver can withdraw funds, should their circumstances change, without penalty.
The government bonus will only be available where an account holder withdraws their money for the purpose of buying a property with a mortgage. It will not be available for cash-only purchases or unregulated financing arrangements.
The property price cap is expected to match that of the current LISA at £450,000, but will be confirmed at a future fiscal event.
People saving for their first home through the FTB ISA will be able to save up to a certain limit a year, to be confirmed, which will count towards their ISA allowance. At Autumn Budget 2025, the government announced that from April 2027 the annual cash ISA limit for individuals under 65 will be set at £12,000 within the overall annual ISA limit of £20,000.
To ensure that current holders of the LISA do not lose out, LISA holders will be able to use any funds in their existing LISA and those in the new FTB ISA for the same purchase. Individuals will be able to hold both the new FTB ISA and an existing LISA, but will only be able to save into one in the same tax year.
Rachael Griffin, tax and financial planning expert at Quilter, commented: “The proposed replacement for the much-criticised Lifetime ISA marks a clear step towards creating a savings product that better reflects the realities facing aspiring homeowners, but there are issues still to be ironed out.
“Importantly, the First Time Buyer (FTB) ISA consultation suggests a shift that would see the government bonus paid when the funds are used to purchase a property, rather than up front. In doing so, it removes the need for what is currently a highly punitive withdrawal charge that sees not only the government bonus clawed back, but some of people’s hard-earned savings too.
“Thousands of savers have been charged for accessing their LISA for an unauthorised withdrawal, often because their financial circumstances changed unexpectedly and they needed to dip into their savings. Allowing people to access their money when needed, while still being incentivised to save towards a deposit for a first home, would be a much better design.
“Equally important is the decision to remove the upper age limit. The average age of a first-time buyer has been consistently on the rise, yet the Lifetime ISA effectively shut the door on those who did not get onto the property ladder prior to turning 40. A reformed product with no age limit would reflect a more modern housing market.
“However, there are still some limitations. The house price cap of £450,000 has been unchanged since the LISA first launched in 2017 and has become increasingly detached from reality in many parts of the country. This has resulted in many people who have saved diligently, particularly those living in London and the South East, being unable to use their LISA for the property they need without facing a penalty. This has undermined confidence in the product and added complexity. Unfortunately, this does not appear to have been addressed within the new product as yet, and even goes as far as suggesting that the existing cap is suitable. The Treasury is consulting on the cap, alongside considerations on the annual subscription limit, so time will tell whether a more generous cap is brought to the table.
“In addition, existing LISAs cannot be transferred to the new FTB ISA, but a Help to Buy ISA can be. You may hold one of each and both can be used to purchase the same home, but subscriptions can only be paid into one. This, combined with the property price cap on LISAs, means those that have saved diligently into a LISA but have been priced out will still receive a penalty if they use their LISA to purchase their first home.
“The existing LISA attempted to serve two distinct goals – saving for retirement and saving for a first home – but failed to meet either effectively. It is vital that the final FTB ISA design avoids simply recreating the same barriers and confusion that have undermined confidence in the Lifetime ISA.”
Jasvinder Gakhal, CEO of money at Skipton Building Society, agreed: "The LISA has helped over 314,000 first-time buyers secure a home of their own, showing how targeted savings support can unlock affordability.
“This consultation is a step in the right direction. Removing the withdrawal penalty, scrapping the upper age limit and reviewing the price cap are all the right calls to create a simpler, more flexible product that works for modern savers.
“But the detail now matters. The Skipton Group Home Affordability Index shows the average first-time buyer home will exceed the current cap in around 10% of local authority areas across Great Britain by the end of 2027. The new scheme must keep pace with the market.
“We look forward to working with Government to ensure the new ISA delivers for first-time buyers and our members, including those with existing LISA savings.”
Paula Higgins, CEO of HomeOwners Alliance, said: “We have been campaigning for some time for the Lifetime ISA withdrawal penalty to be scrapped, so the move towards paying the government bonus only when someone buys their first home is very welcome. It would stop savers being punished for accessing their own money when life takes an unexpected turn.
“Our research shows that 1.9 million aspiring homeowners do not believe they will follow in the footsteps of their homeowning parents. That underlines just how important effective support for first-time buyers is - and why this scheme needs to work for people across the whole country.
“Removing the upper age limit is also sensible. First-time buyers are getting older, and the current rules are increasingly out of step with today’s housing market.
“But we are alarmed that the £450,000 property price cap may be left untouched. It has not changed since 2017 and is now badly outdated, particularly in London and the South East.
“The whole point of this product is to help first-time buyers across the country. Yet those buying in the most expensive markets arguably need the most support, not a scheme that penalises them for purchasing an average-priced home in their area.
“This is a well-intentioned reform, but unless the cap is reviewed, it risks fixing one unfairness while leaving another firmly in place. The Treasury should update the cap now and future-proof the scheme by ensuring it rises in line with house prices, rather than allowing it to become outdated again.
“First-time buyers need a product designed for the housing market of the future, not one based on prices from nearly a decade ago.”
Brian Byrnes, director of personal finance at Moneybox, added: “Now that the proposals are set out in more detail, it is becoming clear just how complex this new product could be.
“We are left with more questions than answers around how savers will navigate this new product in practice, and the administrative burden placed on providers and conveyancers to ensure compliance in how it has been used is onerous and anti-business.
“One of the most valuable features of the Lifetime ISA is the monthly government bonus being added as people save, allowing those funds to start working for customers straight away, creating a powerful and visible reward for positive financial behaviour. Moving to a model where the bonus is only paid at the point of purchase would reduce that benefit and could leave first-time buyers needing to save for longer to reach the same deposit goal.
“The current proposal is more complicated, more restrictive and potentially less valuable than the options many savers already have available. We fully support the government’s continued focus on helping first-time buyers overcome the significant challenges of saving for a deposit. However, the more detail about the new product that emerges, the stronger the case becomes for improving the existing Lifetime ISA rather than replacing it with something demonstrably inferior.”
