Buying a home can take years of saving and may even require support from parents or grandparents. This often makes it quite challenging for younger people to get onto the property ladder.
Now, however, the government intends to introduce a new “First-Time Buyer ISA” designed to help people build a deposit for their first home.
The account is expected to replace the Lifetime ISA (LISA) as the main government-supported ISA for first-time buyers.
Just note that several vital details – namely the annual contribution limit, property price cap, and government bonus – aren’t yet confirmed.
Continue reading to discover why the government wants to introduce the new First-Time Buyer ISA and what the plans could mean if you already have a LISA.
The government claims the Lifetime ISA isn’t working well for everyone
The LISA currently allows eligible savers to contribute up to £4,000 each tax year and receive a 25% government bonus, worth up to £1,000 annually.
You could then use this money to buy a first home worth up to £450,000 (as of 2026/27) or access it for retirement from age 60.
However, withdrawing money for most other reasons typically results in a 25% withdrawal charge.
Following a consultation, the government website states that unauthorised withdrawal charges affected the equivalent of 8% of all LISA accounts opened in 2024/25.
It also says more LISA holders lost part of their original savings through withdrawals than used their accounts to purchase a home.
The proposed First-Time Buyer ISA is intended to simplify everything by allowing you to use it only to buy a first home, not for retirement.
It’s essential to remember that the new ISA is still under review, and the rules could change in the future. Still, the government has already outlined several ways it could work – read on to find out about some of the changes currently being considered.
You would need to be a first-time buyer aged 18 or over and you would still benefit from a bonus
Under the proposals, the new ISA would be available to any UK residents aged 18 or over who are saving for their first home.
Currently, you need to make your first LISA payment before turning 40 and can only continue contributing until age 50. There wouldn’t be an upper age limit with the First-Time Buyer ISA.
This could make the account more practical for people who buy their first home later in life and can’t currently open a LISA.
The main pull of a First-Time Buyer ISA is also expected to be the government bonus.
However, the bonus rate and the amount you’ll be able to contribute each year haven’t yet been announced.
There are suggestions that the government may calculate the bonus when you’re ready to purchase your first home rather than add it to your account as you save.
Your conveyancer would claim the bonus and then make the funds available for the purchase during the exchange.
Importantly, the bonus would be based on your net contributions, meaning what you’ve paid into the account minus any previous withdrawals, rather than investment growth or interest.
However, it’s again important to state that none of this has been confirmed.
You would be able to withdraw your savings without a penalty
One of the main concerns with the LISA was the 25% early withdrawal charge, as it meant you could receive less than you originally contributed.
It seems as though there may not be a similar charge on the First-Time Buyer ISA.
If your circumstances changed suddenly, you could withdraw your own savings, together with any interest or investment growth, without a penalty.
Just note that withdrawing money could still reduce the net contributions used to calculate your eventual government bonus.
Still, this could give you more flexibility if your plans change before you’re ready to buy.
Several other details about the First-Time Buyer ISA are still undecided
The government has proposed offering both Cash and Stocks and Shares versions of the account, but the final rules haven’t been confirmed yet.
A property price cap would likely also apply, but the level hasn’t yet been set.
In fact, the government is still considering responses to its consultation, which closed in August 2026. This means some of the most important details could change before the account officially becomes available.
If you’re a parent or grandparent hoping to help a younger family member buy their first home, it may be worth waiting for the final rules before deciding how the new ISA might fit into your long-term plans.
Lifetime ISAs will remain available until the new account launches
If you already have a LISA, it’s important to note that the proposed changes don’t mean you need to close it.
Indeed, the government has confirmed that you can continue to open and hold a LISA until the First-Time Buyer ISA becomes available.
You’ll also be able to continue using your existing LISA even after it stops being offered.
While the government hasn’t confirmed when the new account will launch, you may not be able to transfer an existing LISA directly into the new First-Time Buyer ISA since your LISA savings have already benefited from the government bonus.
If you’re currently saving towards a first home, it’s a good idea to base any decisions on the rules available today while keeping an eye out for future announcements regarding the First-Time Buyer ISA.
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Please note:
This article is for general information only and does not constitute advice. The information is aimed at individuals only.
All information is correct at the time of writing and is subject to change in the future.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
