NEWS | SAVINGS & FIRST-TIME BUYERS
TL;DR
The government launched a consultation on 23 June 2026 on a new First Time Buyer ISA (FTB ISA) to replace the Lifetime ISA (LISA) from April 2028. The new product removes the punitive 25% withdrawal penalty, is open-ended on age, and pays the government bonus only at the point of property purchase. Existing LISAs remain open and usable.
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Key Facts
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What is the FTB ISA and why is the LISA being replaced
The government published a consultation document on 23 June 2026 setting out proposals for a First Time Buyer ISA (FTB ISA), a new savings product designed exclusively to help people buy their first home. The FTB ISA is intended to replace the Lifetime ISA (LISA), which the government described in the consultation as a product that is "not working well for many" first-time buyers.
The LISA has faced sustained criticism since its launch in 2017 for two structural problems. First, its £450,000 property price cap has not changed in nine years despite significant house price growth, pricing out buyers in London and parts of the South East. Second, the withdrawal penalty is structured so that savers who withdraw funds for any unauthorised reason lose not just the government bonus but also a portion of their own contributions - effectively a 6.25% charge on their own money.
LISA vs FTB ISA: side-by-side comparison
| Feature | Current LISA | New FTB ISA |
|---|---|---|
| Purpose | First home OR retirement (age 60+) | First home purchase only |
| Age to open | 18-39 only | No upper age limit |
| Annual limit | £4,000 (counts toward £20K ISA allowance) | TBC at future fiscal event |
| Government bonus | 25% added to account immediately (max £1,000/yr) | % TBC - paid only at point of purchase |
| Withdrawal penalty | 25% of total (can lose own money) | None - just lose bonus entitlement |
| Property price cap | £450,000 (unchanged since 2017) | Expected £450,000 - TBC |
| Cash buyers | Not eligible for bonus | Not eligible for bonus |
| Transfer in from H2B ISA | Yes | Yes |
| Transfer in from LISA | N/A | No - LISA funds cannot transfer |
How the bonus mechanism changes
The fundamental shift between LISA and FTB ISA is when and how the government bonus is paid. Under the LISA, the 25% bonus is added to your account as you contribute, so it sits there, grows with your investments, and becomes part of your balance. The problem: because the bonus is already in the account, the penalty system has to claw it back - and the 25% penalty applies to the total account value (contributions plus bonus), not just the bonus. A saver who deposited £10,000 and earned £2,500 in bonuses, then saw the account grow to £15,000, faces a £3,750 penalty on withdrawal - wiping out the £2,500 bonus and taking £1,250 of their own contributions.
The FTB ISA fixes this by never putting the bonus in the account in the first place. Your contributions grow in the account. The government tracks your bonus entitlement separately. At the point of purchase, the conveyancer triggers the bonus release: they notify the FTB ISA manager, who claims the bonus from HMRC, and it is released alongside your savings toward the deposit. HMRC pays within 90 days of purchase completion. If you withdraw without buying, you simply receive back your contributions only - no bonus, no penalty on your own money.
Consultation timeline and what happens next
| Date | Milestone |
|---|---|
| 23 June 2026 | FTB ISA consultation published by HM Treasury |
| 17 August 2026 | Consultation closes (email: ftbisaconsultation@hmtreasury.gov.uk) |
| Autumn 2026 / Spring 2027 | Bonus rate, subscription limit and property cap confirmed at fiscal event |
| April 2028 | Planned FTB ISA launch (subject to Budget confirmation) |
| April 2028 onwards | New LISA openings no longer permitted; existing LISAs remain open |
The property price cap problem
The £450,000 cap has been unchanged since the LISA launched in April 2017. The Treasury Select Committee highlighted in a June 2025 report that the cap is increasingly unfit for purpose in London and the South East. Skipton Building Society projected that average first-time buyer homes will exceed the current cap in around 10% of local authority areas by end of 2027.
The consultation is seeking views on whether the cap should be set higher, indexed to inflation or house price growth, or differentiated by region. No decision has been made. The Treasury's own consultation document notes the current cap was aligned with Help to Buy ISA limits of £250,000 outside London and £450,000 in London when the LISA launched - suggesting a higher national cap is at least under consideration.
What happens to existing LISAs
Existing LISAs will not be closed or converted. The government has confirmed LISA holders keep their accounts indefinitely and can use the funds for a qualifying property purchase even after the FTB ISA launches. A saver can hold both a LISA and an FTB ISA and use funds from both toward the same purchase. LISA funds cannot transfer into the new FTB ISA; Help to Buy ISA funds can.
What is still not confirmed
The bonus rate, annual subscription limit, exact property price cap, and any indexation are all left open in the consultation. Without these figures it is not possible to directly compare the financial value of the FTB ISA to the LISA. The LISA offers a 25% bonus on up to £4,000 per year (maximum £1,000 annual bonus). Whether the FTB ISA matches or exceeds this will depend on the final Treasury design.
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Disclaimer: This article is for general information only and does not constitute financial or legal advice. Kaeltripton.com is an independent editorial publisher and is not regulated by the FCA. Always verify information at primary sources and consult a qualified adviser before making decisions about savings, investments or legal claims. |
Frequently asked questions
When does the FTB ISA replace the LISA?
The government's planned launch date is April 2028, subject to confirmation at a future fiscal event. The consultation runs until 17 August 2026. No final legislation has been passed at the time of publication.
Can I still open a LISA in 2026?
Yes. LISAs remain available to open for anyone aged 18 to 39 until the FTB ISA launches. Once the FTB ISA is available, it is expected that new LISA openings will no longer be permitted, though existing LISAs will stay open.
What happens to my LISA pension savings if the LISA is scrapped?
The FTB ISA is for first-time buyers only and does not replace the LISA's retirement function. If you were using a LISA to save for retirement after age 60, you will need to use alternative products such as a pension, SIPP or standard stocks and shares ISA for future contributions to that goal. Existing LISA balances earmarked for retirement would need to be withdrawn at some point, and the current 25% penalty would apply to withdrawals before age 60 unless the rules change before then.
Is there a penalty for withdrawing from the FTB ISA?
Under the proposed design, no. If you withdraw funds from the FTB ISA for any reason other than a qualifying home purchase, you lose the bonus entitlement on those funds but there is no additional charge on your own contributions. This is a significant structural improvement over the LISA, where the 25% penalty could result in savers receiving less than they originally deposited.
Where can I find the official consultation document?
The full consultation document is published by HM Treasury and available at GOV.UK. The consultation reference is the First Time Buyer ISA consultation document published 23 June 2026. Responses close 17 August 2026.
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Primary Sources |
