Key Takeaway

The new First Time Buyer ISA is designed to replace the Lifetime ISA with a simpler, more flexible product that removes penalties, removes the age limit, and pays the government bonus at the point of purchase rather than upfront.
But unresolved issues remain — especially the unchanged £450,000 property cap and the inability to transfer existing LISAs into the new scheme.

1.  Why the LISA is being withdrawn

The government has confirmed that the Lifetime ISA will be phased out, following years of criticism and a 2025 Treasury Select Committee report that found:

• The product’s dual purpose (retirement + first home) caused confusion.
• The withdrawal penalty was “punitive”, often taking savers’ own capital.
• More people have lost savings through penalties than have used a LISA to buy a home.
• Thousands of savers made unauthorised withdrawals due to unexpected life events.
• The age limit (18–39) excluded many would‑be first‑time buyers.
• The £450,000 property cap has not kept pace with real house prices, especially in London and the South East.

The government now accepts that the LISA “is not working well for many”.

2.  How the new First Time Buyer ISA works

✔ What’s changing

• No age limit — open to first‑time buyers of any age.
• Government bonus paid at completion, not upfront.
• No withdrawal penalty — savers can access their money freely.
• Bonus only applies when buying with a mortgage (not cash purchases or unregulated finance).
• Property price cap expected to remain £450,000 (subject to consultation).
• Annual subscription limit still to be confirmed.
• From April 2027, under‑65s will have a £12,000 cash ISA sub‑limit within the £20,000 ISA allowance.

✔ What stays the same

• Must be a first‑time buyer.
• Must use the funds to buy a UK residential property.
• Bonus only applies to eligible purchases.

3.  How the two products compare

4.  Key improvements

⭐ No penalty for withdrawals

This is the single biggest improvement.
Under the LISA, withdrawing for any reason other than a first home or retirement triggered a 25% charge, which often meant losing part of your own savings.

The FTB ISA removes this entirely.

⭐ No age limit

Reflects the reality that the average first‑time buyer age is now well into the 30s and rising.

⭐ Bonus only paid when buying

This avoids the need for clawbacks and simplifies the product.

5.  Remaining issues and risks

⚠ The £450,000 property cap

This is the biggest unresolved flaw.

• The cap has been frozen since 2017.
• In many areas — especially London and the South East — it excludes typical first‑time buyer properties.
• Savers who exceed the cap with a LISA still face penalties.
• The consultation suggests the cap may remain unchanged.

⚠ Existing LISAs cannot be transferred

This creates a two‑tier system:

• Help to Buy ISA → FTB ISA: allowed
• LISA → FTB ISA: not allowed

This means diligent LISA savers who have been priced out may still face penalties if they use their LISA for a property above £450,000.

⚠ Dual‑product complexity

People may end up holding:

• A LISA
• A Help to Buy ISA
• A First Time Buyer ISA

…with different rules, caps, and bonus structures.
This risks recreating the confusion the government is trying to eliminate.

6.  Overall assessment

The FTB ISA is a significant improvement over the LISA:

• More flexible
• More realistic
• Less punitive
• Better aligned with modern home‑buying patterns

But unless the government addresses:

• the £450,000 cap, and
• the inability to transfer LISAs,

many savers will still face the same barriers that undermined the LISA.

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