First-Time Buyer ISA: Government Launches Consultation to Replace Lifetime ISA

What the First-Time Buyer ISA Consultation Proposes

HM Treasury published its formal consultation document on the First-Time Buyer ISA on 23 June 2026, titled "First Time Buyer ISA: Consultation." The 22-page document sets out the government's proposals for a new savings product to replace the Lifetime ISA (LISA) and invites responses from individuals, financial institutions and industry bodies by 17 August 2026.

The government's stated rationale for replacing the Lifetime ISA is that the product's complexity - and in particular its 25% withdrawal charge, which has affected savers who needed to access funds for reasons other than a first home purchase or retirement at 60 - has deterred both providers from offering it and savers from taking it up. The Treasury Committee published a report in June 2025 finding the LISA's dual-purpose design for first-time buyers and retirement saving increased the risk of unsuitable investment strategies, and that the withdrawal charge was confusing and punitive. The government's response has been to design a single-purpose product focused entirely on first-time home purchase.

The new FTB ISA differs from the Lifetime ISA in four material ways: it is open to all first-time buyers aged 18 and over with no upper age limit; the government bonus is paid at exchange of contracts rather than credited to the account on an ongoing basis; there is no exit penalty for withdrawing funds for any reason other than a first home purchase; and the product can hold cash or investments, giving savers flexibility on how they deploy contributions while saving.

How the Bonus Will Work

The consultation does not fix the annual contribution limit or the bonus rate, both of which are left open for stakeholder input. The government has confirmed that contributions will count toward the saver's overall annual ISA allowance (GBP 20,000 in 2026/27), and that the product will sit alongside other ISA types rather than replacing the ISA framework itself. The bonus structure confirmed in the consultation is that the government contribution will be paid when the saver uses the FTB ISA proceeds to buy a first home, rather than credited annually or monthly as the LISA bonus currently works.

This model is closer to the original Help to Buy ISA, which ran from 2015 to 2019 and paid a 25% government bonus at completion on the purchase of a first home. The FTB ISA differs from the Help to Buy ISA in that savers will be able to deposit lump sums (the Help to Buy ISA capped monthly contributions at GBP 200 and an initial deposit of GBP 1,000), and the bonus is paid at exchange of contracts rather than completion. The move to exchange is noted in the consultation document as addressing a timing issue that affected Help to Buy ISA users, some of whom found the bonus could not be used as part of the deposit at completion.

The property price cap - a central concern for savers in London and the South East who found the LISA's GBP 450,000 limit, unchanged since 2017, increasingly detached from local market prices - is explicitly flagged as an open question in the consultation. The government acknowledges the LISA cap has caused problems but has not committed to a specific figure for the FTB ISA. Rachael Griffin, tax and financial planning expert at Quilter, noted this as the most significant unresolved risk: savers who have been priced out of their market using a LISA face a penalty today, and the same problem could recur under the FTB ISA if the cap is not set at a realistic level.

What Happens to Existing Lifetime ISA Holders

The government has confirmed that existing Lifetime ISA accounts will not be automatically closed or transferred when the FTB ISA launches. Lifetime ISAs remain open to new subscribers until the FTB ISA is available; once the new product launches, no new Lifetime ISAs can be opened but existing accounts continue. Savers who already have a LISA can continue to contribute to it and use it to purchase their first home, subject to the existing GBP 450,000 property price cap and the 25% withdrawal charge for non-qualifying withdrawals.

Crucially, existing LISA balances cannot be transferred into the new FTB ISA. This means savers who have built up a substantial LISA balance but are now priced out of their market - and who would face the 25% withdrawal charge if they tried to access the funds - remain in the same position under the new framework. Help to Buy ISA balances, by contrast, can be transferred into the FTB ISA when the product launches. Savers can hold one of each product type simultaneously, and both can be used toward the purchase of the same first home, but contributions can only be paid into one in any given tax year.

For savers currently deciding whether to open a new Lifetime ISA ahead of the FTB ISA launch, the key variable is timing. LISAs continue to pay a 25% upfront bonus on contributions up to GBP 4,000 a year - a GBP 1,000 annual government bonus - which may be attractive if the FTB ISA bonus rate is set lower. However, if the saver's target property price exceeds GBP 450,000, the LISA withdrawal charge risk remains. The government has not confirmed a launch date for the FTB ISA beyond indicating that it would likely be the subject of a Budget announcement for April 2027 implementation.

The No-Penalty Withdrawal Rule

One of the most significant practical differences between the proposed FTB ISA and the existing Lifetime ISA is the removal of the exit penalty. Under the current LISA rules, a saver who withdraws funds for any reason other than buying a first home or reaching the age of 60 (or a terminal illness diagnosis) faces a 25% withdrawal charge. Because the charge is applied to the total withdrawal including the government bonus, the effective penalty on the saver's own contributions is 6.25% rather than 25% - but the impact has nonetheless deterred savers from treating the LISA as a genuinely accessible savings product.

Government data published in 2025 found that one in five people had been put off opening a Lifetime ISA specifically because of the withdrawal charge. The FTB ISA consultation proposes removing the penalty entirely: savers who choose not to use their FTB ISA toward a first home purchase will be able to withdraw their contributions without charge, though they will not receive the government bonus in that case. The Paula Higgins, chief executive of the HomeOwners Alliance, welcomed this change as "very welcome" given the Alliance's campaigning for scrapping the LISA withdrawal penalty. AJ Bell noted that paying the bonus at purchase rather than upfront removes the need to claw back the bonus on non-qualifying withdrawals, which was the root cause of the penalty's complexity.

What is the First-Time Buyer ISA?

The First-Time Buyer ISA is a proposed new savings product announced by HM Treasury in a consultation published on 23 June 2026. It is designed to replace the Lifetime ISA for first-time home buyers. It will pay a government bonus when the saver uses the proceeds to buy their first home, with no exit penalty for withdrawals used for other purposes. Key details including the annual contribution limit, bonus rate and property price cap are subject to consultation and have not yet been confirmed.

When will the First-Time Buyer ISA launch?

The government has not confirmed a launch date. The consultation closes on 17 August 2026. Commentary from HM Treasury suggests the product is likely to be announced at a Budget for April 2027 implementation, though this has not been confirmed and could change depending on the consultation outcome and fiscal timetable.

What happens to my existing Lifetime ISA?

Existing Lifetime ISA accounts remain open and fully functional. Savers can continue to contribute up to GBP 4,000 a year and receive the 25% government bonus. Existing LISA balances cannot be transferred into the new FTB ISA when it launches. Lifetime ISAs will remain open to new subscribers until the FTB ISA is available, at which point no new LISAs can be opened.

Can I transfer a Help to Buy ISA into the First-Time Buyer ISA?

Yes. The consultation confirms that Help to Buy ISA balances can be transferred into the new First-Time Buyer ISA. Lifetime ISA balances cannot. Savers can hold both a LISA and an FTB ISA simultaneously and use both toward the same first home purchase, but can only contribute to one in any given tax year.

Will there be an age limit for the First-Time Buyer ISA?

No. The proposed FTB ISA has no upper age limit - it is open to any first-time buyer aged 18 or over. This is a significant difference from the Lifetime ISA, which could only be opened by savers aged between 18 and 39. The removal of the upper age limit reflects the government's acknowledgement that the average age of first-time buyers has risen consistently and that the LISA's age cap shut out an increasing proportion of first-time buyers.