More details on the new ISA for first-time buyers

The Lifetime Individual Savings Account (LISA) has been a great way for first-time buyers to save for a deposit. Yet after 10 years of operation, the Treasury Select Committee and HMRC have decided LISAs no longer serve their purpose.

LISAs should be more popular than they are as they basically offer free cash. For every £1 a saver contributes, the Government adds 25p, up to an annual maximum of £1,000. The savings are also tax free, meaning someone can save £4,000 per year towards a deposit and actually have £5,000 in their account.

First things first. LISAs still exist. They won’t be phased out until approximately April 2028. You can still open a LISA until then.

LISAs explained

• LISAs are available to people saving for their first home or for their retirement

• A LISA must be opened by someone aged between 18 and 39

• There are cash, and stocks and share LISAs available

• A LISA’s savings and interest earned are tax free 

• The first payment into a LISA must be paid before the account holder is 40

• The LISA must be opened for at least 12 months before the cash and Government top up can be used

• Up to £4,000 can be saved annually until the account holder is 50

• The property purchase must be made using a legal mortgage

• If used for retirement, the cash is only accessible once the account holder turns 60

• The maximum price of a property bought anywhere in the UK must be £450,000 or less

• Money saved in a LISA can be withdrawn but there are financial penalties for those who access the cash for reasons other than a property purchase or retirement

LISAs under scrutiny

The last three points have proved problematic for the LISA. Firstly, the Government has realised investment strategies for retirement can be very different to saving for a deposit, so they want to separate the objectives.

The maximum house price value attached to a LISA hasn’t changed since the initiative was introduced in 2017, remaining at £450,000 across the UK. This has excluded many first-time buyers in London and the South. To illustrate, the Office for National Statistics reports London’s average house price is £544,814

Finally, many savers have had to withdraw money from their LISA due to unexpected circumstances. If you’re not using the cash to buy a property or for retirement, there are financial penalties. Some savers have lost more money than they put in. A 25% penalty is currently applied to all unauthorised withdrawals.

As such, the Government announced in the 2025 Autumn Budget that it would phase out LISAs and bring in a replacement.

Introducing the First Time Buyer ISA (FTB ISA)

In June 2026, the Government launched a consultation on the LISA’s replacement. The official document reveals what a new product may look like. LISAs will close to new applicants and FTB ISAs will open around April 2028.  

On paper, LISAs and FTB ISAs serve the same purpose: reward people who are saving for a deposit. There are proposed differences that savers should note.

LISAs versus FTB ISAs: the differences

• The money in FTB ISAs will only be redeemable when buying a home, not for retirement

• The Government contribution will only be paid when a saver with a FTB ISA buys a property, not monthly

• The 25% unauthorised withdrawal penalty will not apply to FTB ISAs

• There won’t be an age restriction – a first-time buyer can be of any age when opening a FTB ISA

• Those with a Help to Buy ISA will be able to transfer their savings into a new FTB ISA product. This transfer facility will not apply to LISA account holders

The detail that’s still missing

The Government is expected to confirm a number of finer details once its FTB ISA consultation is complete. These include:

• How much a saver can deposit every year

• The Government’s annual contribution

• The maximum price of a property that can be bought and whether there will be regional variations

FTB ISAs: good to know

• FTB ISAs will need to be open for a year before funds can be used

• FTB ISAs will be available in cash, and stocks and shares forms

• The minimum age to open a FTB ISA will be 18 years old

• Existing LISA holders will also be able to open a FTB ISA, combining their funds to make a purchase

• Those with both a LISA and a FTB ISA will only be able to save into one account in the same tax year

• Two people purchasing together can each have a LISA and a FTB ISA

If you are a first-time buyer exploring your options, contact us. We can put you in touch with a financial adviser, help you work out what deposit amount you might need and show you some property options within budget.