Finance Matters Insights
The new First Time Buyer ISA explained
Happy Monday,
There are updates on the Lifetime ISA reform, so here's what we know.
The govt. have announced a new First Time Buyer (FTB) ISA to replace the LISA. The final details are still being ironed out but there's a clearer picture of what to expect.
Why the reform is happening
In recent years, the LISA has come under scrutiny for being flawed.
The £450,000 property cap has been frozen since 2017, despite house prices in the UK rising significantly since then. In London specifically, the cap now excludes a large chunk of realistic first-time buyer properties.
There have been more users affected by the 25% withdrawal penalty than users who have gone on to use the LISA towards their first property - (I too was surprised). It does go to show the holes that exist in the current set up.
🏡 The known changes:
The consultation is still open which means we may still hear of more changes however, what we know so far:
→ No upper age limit: The current LISA has to be open before you turn 40. The new FTB ISA is expected to have no age cap.
→ Sole purpose: It will focus solely on home purchases, removing the retirement crossover that the LISA has.
→ No withdrawal penalty: Arguably the most significant change. The government bonus will only be paid at the point you exchange contracts on a qualifying property, rather than being added to your account each month. Because the bonus isn't sitting in the account throughout the saving period, there's no need for a penalty if you take the money out for another reason. You can withdraw your own savings if life circumstances change, without losing anything.
🗒️ What we don't know
The consultation leaves several key details unconfirmed. Specifically:
- The government bonus level (currently 25% under the LISA)
- The annual contribution limit (currently £4,000 under the LISA)
- The property price cap (currently £450,000)
📌 What it means for you now
If you already have a Lifetime ISA, nothing changes yet. You can continue contributing indefinitely, and your existing pot will keep working as it does now.
One important note for existing LISA holders: your Lifetime ISA cannot be transferred into the new First Time Buyer ISA when it launches. The two products will run separately. You will, however, be able to hold both a LISA and an FTB ISA at the same time, and use both towards the same house purchase. You just won't be able to pay into both in the same tax year.
If you don't have a LISA and you're eligible (18 to 39, looking to buy a first home under £450,000), you can still open one today. The current 25% bonus is still available, and there's no cut-off. Given the new FTB ISA isn't expected until 2028, that's potentially two more years of free government bonuses you'd be missing out on by waiting. Worth flagging that both the LISA and the new FTB ISA require the account to have been open for at least a year before you can claim the bonus, so opening one sooner rather than later matters.
If you have a HTB ISA, these are no longer available to new applicants but you can continue paying into it until Nov 2029 and must use the bonus by Dec 2030. Unlike the LISA, you are able to transfer from the HTB ISA to the FTB ISA.
I'll be back with an update when we have one.
F
Fisayo Martins
Founder at Finance Matters UK
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