Government proposes new First-Time Buyer ISA to replace Lifetime ISA

The Lifetime ISA, introduced in 2017, has enabled more than 413,000 people to save for a first home or retirement, offering a 25% government bonus. However, the scheme faces criticism because withdrawing funds for any purpose other than a home under £450,000 triggers a 25% penalty on the total balance, effectively erasing the bonus and part of the saver’s own money. After a recent consultation, officials announced plans to replace it with a First-Time Buyer ISA within roughly two years, restricting use to first-time home purchases and delivering the bonus after the sale closes.

The new product’s price ceiling has not yet been set, and experts argue that adjusting the cap and penalty on the existing ISA might be a simpler solution. Moneybox accounts for a large share of LISA-linked purchases, especially outside London, where the £450,000 cap is less restrictive. Critics also note that an ISA cannot address broader issues such as high house prices or limited housing supply.