Hello first-time buyer ISA; goodbye LISA

HM Treasury has released a consultation on a new ISA designed to help first-time buyers get on the property ladder – the “First-time buyer ISA” or FTB ISA. Once launched, the lifetime ISA (LISA) will be closed to new applicants.

10 key points regarding the proposed FTB ISA:

• A Government bonus will be paid when a withdrawal is made for purchasing a first home, so can be used towards the deposit.
• It cannot be used for cash-only house purchases.
• The property price cap has not yet been set.
• Bonuses will only be paid on the net amount subscribed – not on any growth.
• The account must have been opened for at least 12 months to be eligible for the bonus.
• Funds can be withdrawn at any time without penalty.
• There will be a yet-to-be decided limit that can be saved each year.
• Open to those aged 18+; no upper age limit.
• No transfers from LISA to FTB ISA will be allowed; but both can be used for the same property purchase.
• Cash FTB ISAs and stocks & shares FTB ISAs will be permitted.

Simplification?

The FTB ISA is intended as a simpler alternative to a LISA. Designed for one purpose only, with no confusing withdrawal charges.

However, there is an argument that we do not need yet another ISA. Instead, the rules could be changed to allow ISA account holders to use up to a set amount of their regular ISA towards their first time house purchase, and provided they meet the eligibility criteria, they get the Government bonus.

Is it a better deal than LISA?

At first glance, LISA looks like a better deal for potential first-time buyers. A key difference is the timing of the bonus. With LISA the bonus is paid the month after the subscription, which can then be invested and benefit from compound tax-free growth. Under the new FTB ISA, the bonus is paid at the point the account holder is ready to buy a house – so no compounding. There is potential for the level of bonus to be higher – but until we are told what it is we can only guess.

Alignment of ISAs

FTB ISAs will be the third type of ISA aimed at getting people on the property ladder. Help-to-buy ISAs (H2B ISAs) still exist but are closed to new applications, which will be the position for LISAs once the FTB ISA is launched. The plan is to align the three types of ISA, so the property price cap will be the same for all.

It will not be possible to transfer LISAs to FTB ISAs (as they have already had bonuses paid on them), but it will be possible to transfer from an H2B ISA to an FTB ISA. Although an individual can hold a LISA and an FTB ISA, they will only be allowed to pay into one in any given tax year.

What next?

The consultation runs until 18 August 2026. It is likely that confirmation – or otherwise – of the new FTB ISA, including launch date, will be announced in the Budget sometime in the autumn.