The Government has finally released details of how the new First Time Buyer ISA (FTB ISA) will work in practice
We’ve known for months that the Lifetime ISA is being withdrawn soon, but there have been big questions over what will be replacing it.
Until now, that is, with the Government launching a consultation into its new product along with almost all the technical details of how it will work.
So, given this is the third attempt to launch an ISA to help people to buy a home, we’ve gone through the features, how it’s different from the previous versions, who can open one and how the bonus will work below.
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Why is the Lifetime ISA being withdrawn?
The argument against the Lifetime ISA comes down to two main points.
Firstly, it’s complicated. The fact it can be used for both a first home and retirement savings makes it needlessly confusing – especially as there are already hefty tax breaks available for retirement savings in pensions.
Secondly, it penalises people for accessing their savings for anything except buying a home (or after they turn 60).
So far, more LISA holders have lost a part of their original savings thanks to the penalties than have used it to purchase a house. And that’s putting off both potential savers and stopping many banks and building societies from offering them in the first place.
The final point the Government makes is that the Lifetime ISA is needlessly restrictive – why stop letting people open them after they turn 40 after all?
To sum up, the consultation states: “We recognise that the LISA is not working for everyone, and that when people’s circumstances change, they should be able to adjust their finances accordingly.
“We understand that the complexity of the LISA may have dissuaded many providers from offering it, and savers from taking it up, meaning that it is not as accessible as it could be. That is why we are consulting on the implementation of a new, simpler, ISA product to support first time buyers.”
Can you still open a Lifetime ISA?
You’ll be able to open a new Lifetime ISA right up until the new product is launched.
Can you keep your Lifetime ISA if you already have one?
Yes. Any existing Lifetime ISAs will be unaffected by the new product’s launch and will continue operating under the current rules – including the Government bonus payments.
If you want to, you’ll be able to transfer to a new First Time Buyer ISA once they go live, but no one will be forced to.
What’s changing with the new First Time Buyer ISA
The first change is simple – there will be no upper age limit. Anyone over 18 will be able to open one.
Secondly, the retirement savings element is gone – you only get the Government bonus if you use the ISA to buy your first home.
The next big change, and the one that’s raised a few industry eyebrows, is the way the bonus is paid.
Currently, it’s added to your contributions as you go – meaning you also earn interest on the Government’s bonus money.
It also means that any withdrawals have 25% taken out of them, unless you’re buying your first house or have turned 60 (which no one has, so far, thanks to the age restrictions on opening them).
The new First Time Buyer ISA will, instead, pay the bonus only when you buy a home and base it only on what you’ve paid in along the way.
That means two things.
Firstly, it means you can withdraw money from your account, penalty-free, in just the same way you would with any other ISA.
Secondly, it means you won’t earn any interest at all on the Government bonus money – it will be a flat percentage of your net contributions.
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Who will be able to take out the new First Time Buyer ISA
The Government has said its new First Time Buyer ISA will be available to:
- UK residents looking to purchase their first home
- Those purchasing with a legal mortgage
- Those aged 18 and over. There’s no upper age limit, unlike with the Lifetime ISA
The bonus will only be available to people who have had their account open for a year.
How much will the bonus payment be?
That’s the big question.
Currently, you get 25% added to any money you pay into a Lifetime ISA. With the annual contribution limit set at £4,000 a year that means as much as £1,000 extra pounds added to your savings by the Government.
But the Treasury is willing to change that – ideas floated have been a bigger percentage bonus for a smaller limit on annual savings or a smaller property price cap also coming with potentially bigger bonus.
Of course, the reverse is also true – a bigger annual savings limit or property price cap coming at the expense of a smaller percentage bonus.
The Government has asked the industry to get back to it with any thoughts by 17 August 2026 before it comes to any decisions.
First Time Buyer ISA vs Lifetime ISA and Help-to-buy ISA summary
| FTB ISA | Lifetime ISA | Help-to-Buy ISA | |
| Age limit | Must be 18 or over to open an account, with no upper age limit. | Must be 18 to 40 to open an account, with no subscriptions allowed over 50. New accounts closed to applicants, with subscriptions to existing accounts stopping in November 2029. | New accounts closed to applicants, with subscriptions to existing accounts stopping in November 2029. |
| Subscription limits | To be confirmed. Any subscriptions will count towards the £20,000 ISA allowance, with a Cash FTB ISA limit also counting towards the £12,000 Cash ISA limit. No maximum amount on subscriptions over an individual’s lifetime. | £4,000 a year, within the overall £20,000 ISA allowance. Maximum subscriptions effectively capped at £128,000, given no subscriptions allowed after 50. | £1,200 subscription upon opening, followed by £200 per month. To count towards the £20,000 ISA allowance. Maximum savings allowed for a bonus of £3,000. |
| Multiple subscriptions | Subscriptions allowed into one account per tax year, including a LISA or FTB ISA | Subscriptions allowed into one account per tax year, including a LISA or FTB ISA | Subscriptions allowed into one account per tax year |
| Property price cap | To be confirmed at a future fiscal event. The cap will match that of the LISA and HtB ISA when announced. | £450,000 | £450,000 in London and £250,000 outside. |
| Transfers between different types of first time buyer products | No transfers between FTB ISA and LISAs, but both products can be used towards the same purchase. Transfers from a HtB ISA into a FTB ISA allowed up to the subscription limit. | Transfer from a HtB ISA into a LISA allowed up to the subscription limit | N/A |
| Transfers between the same type of accounts | Transfers allowed, apart from S&S FTB ISAs to Cash FTB ISAs | Transfers between LISAs (Cash and S&S) allowed. | Transfers between HtB ISAs allowed |
| Transfers between other ISA types | Transfers in allowed up to subscription limit. Transfers out to S&S allowed, but lose the bonus eligibility. Transfers out to a Cash ISA are banned. | Transfers in allowed up to the £4,000 annual limit. Transfers out allowed, but subject to the 25% withdrawal charge. | Transfer in allowed up to the £200 monthly limit. Transfers out, allowed but lose the bonus eligibility |
| Timing of the bonus and withdrawal charge | Bonus paid at exchange and no withdrawal charge. Individuals will have 90 days from the point of claiming the bonus to completion their purchase | Bonus paid upon deposit at the end of the month. Individuals will have 90 days from the point of claiming the bonus to completion their purchase. Withdrawal charge of 25% on any withdrawals | Bonus paid upon completion and no withdrawal charge |
| Bonus eligibility | Held account for 1 year | Held account for 1 year | Held account for 3 months |
| Must use with a mortgage | Yes | Yes | Yes |
| Account types available | Cash and S&S | Cash and S&S | Cash only |
| Who offers them | Multiple providers | Multiple providers | Single provider (NS&I) |
Is the First Time Buyer ISA better than the Lifetime ISA?
For buying a home, the answer is a firm “maybe”.
You get a lot of extra flexibility, being able to withdraw money from it penalty-free, but that comes at the expense of being able to earn interest on the Government bonus cash.
What it absolutely is is clearer. Pay in money, and if you use it to buy your first home you get a bonus. No ifs, no buts.
So you’re sacrificing a bit of extra cash for simplicity and flexibility.
When it comes to retirement savings the answer is more stark – the new ISA is absolutely useless for that.
