The UK government has announced a new First Time Buyer ISA, designed to help individuals save for their first property with a government bonus. However, this new account will not be available until April 2029. In the interim, the Lifetime ISA (LISA) remains the primary option for prospective homeowners seeking a government top-up on their savings.
The Lifetime ISA, which is accessible for new customers until April 2029 and existing customers thereafter, offers a 25% government bonus on contributions up to £4,000 per year. The maximum property purchase price eligible for LISA funds is £450,000. Recent changes have also softened the withdrawal penalty; while a 25% penalty still applies for non-qualifying withdrawals, it has been reduced from the previous rate, meaning savers get back their initial investment minus the bonus.
The new First Time Buyer ISA will also offer a 25% government bonus on annual contributions capped at £4,000, with the same £450,000 property price limit. A key difference is that the bonus for the First Time Buyer ISA will only be paid upon withdrawal for a property purchase, meaning there are no penalties for withdrawing funds for other reasons, though the bonus would be forfeited. This offers greater flexibility for savers whose plans may change.
Unlike the Lifetime ISA, which can also be used for retirement savings and has age restrictions for opening and contributing (ages 18-39 to open, contributions stop at 50), the First Time Buyer ISA has no upper age limit for opening and is solely dedicated to saving for a first home. This makes it a potential alternative for those over 40 who are currently unable to open a Lifetime ISA.
Savers can utilize funds from both ISAs towards a property deposit, but they cannot transfer existing Lifetime ISA funds directly into the new First Time Buyer ISA. Individuals can only contribute to one ISA product per tax year. Existing Help to Buy ISAs, which closed to new applicants in 2019, can be transferred to the First Time Buyer ISA under certain conditions.
For those looking to start saving immediately, various Lifetime ISA providers offer different options. Cash LISAs from providers like Moneybox and Plum offer varying interest rates and introductory bonuses. Stocks and Shares LISAs are available from platforms such as AJ Bell Dodl, AJ Bell, and Hargreaves Lansdown, catering to different investment approaches and risk appetites.