Lifetime ISA vs new First Time Buyer ISA: Which is better?

The Government has now released full details of its Lifetime ISA replacement – the First Time Buyer ISA. We take a look to see how they compare

The new First Time Buyer ISA is coming in April 2029 – it’s the third specialist ISA launched to try and help people onto the housing ladder.

But how does it compare to its predecessors and is it actually any better?

This is how the new ISA stacks up.

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What is the new First Time Buyer ISA?

The First Time Buyer ISA is a savings account designed to help people buy their first homes.

It’s a replacement for the Lifetime ISA — which is being withdrawn.

The idea is to provide new homeowners with a boost to their deposits, with fewer drawbacks than the Lifetime ISA and in a simpler way.

According to the announcement in this year’s Autumn Budget, the new ISA is launching in April 2029.

What’s wrong with the Lifetime ISA?

The main problems the Government found with the Lifetime ISA were:

• Complexity: The account can be used to help with retirement, or buy your first home and a consultation found that mixed messaging left people unsure of what it was for
• Withdrawal penalties: If you use your Lifetime ISA for any purpose other than buying a first home or after you turn 60, you can actually get back less than you paid in thanks to a hefty 25% withdrawal penalty
• Age limits: You can only open a Lifetime ISA between the ages of 18 and 39

All this means not a lot of people have taken them out and not that many banks and building societies are prepared to offer them.

While more than 10 million people save into a Cash ISA each year, and almost five million save into a Stocks and Shares ISA, just over one million are saving into a Lifetime ISA. When they asked, the Government found the biggest thing stopping people from opening a Lifetime ISA was the withdrawal charge.

It’s a fair criticism. HMRC data shows between April 2025 and March 2026 some 154,100 people made unauthorised withdrawals from their Lifetime ISA, costing an average £3,088 per saver.

By contrast, just 99,570 people used their Lifetime ISA to purchase their first home. So more people were penalised than actually got the bonus.

The First Time Buyer ISA is designed to help fix these issues.

What are the key differences between the Lifetime ISA and the new First Time Buyer ISA?

To fix the problems with the Lifetime ISA, the Government decided a simpler account was needed.

First, they scrapped the upper age limit. Anyone over the age of 18 who’s a UK resident will be able to apply for a First Time Buyer ISA.

Secondly, the Government got rid of the complicated maths around the bonus cash.

With a Lifetime ISA, the Government adds 25% to money you pay in every month. If you access your cash early, however, there is a 25% penalty. That gets messy, quickly. 

For example, if you pay in £80 into a Lifetime ISA, the Government adds £20 — leaving you with £100. If you withdraw that £100 for a non-approved reason the Government takes back £25 — leaving you with £75. That’s less than you put in in the first place.

Instead of all that, the First Time Buyer ISA simply doesn’t pay the bonus cash until you use it to buy your first home as long as it costs less than the £450,000 price cap.

Until that point, the First Time Buyer ISA simply works like any other ISA.

This change isn’t universally good news, however, as it means there’s no chance to earn interest on your bonus cash along the way.

Changes in brief

Change	Lifetime ISA	First Time Buyer ISA
Age limit	18-39 years old	Anyone over 18
Withdrawal rules	25% penalty for early/non approved withdrawal	Use the cash as you like
Bonus payment	Every month	When you buy a home

What’s staying the same with the First Time Buyer ISA?

The first thing that’s not changing is the £4,000-a-year contribution limit. 

The second thing unchanged is the £450,000 house price limit. That’s the most you can spend on a home and still qualify for the bonus cash.

Finally, you can put your money into stocks and shares or save it as cash, just like with a Lifetime ISA.

Can you keep paying into a Lifetime ISA after the new First Time Buyer ISA is launched?

Yes. After April 2029 you won’t be able to open a new Lifetime ISA, but if you have one open you can keep saving into it.

That means you’ll be able to keep getting your 25% bonus on money you pay in right up until you turn 50.

Can you transfer from a Lifetime ISA to a First Time Buyer ISA?

No. The different way the bonus is paid out between the two accounts means you won’t be able to switch cash between them.

The Government has said that you can use both, and get the bonus from both, when it comes time to buy a home, however.

Sadly, that doesn’t mean you’ll get an £8,000 a year allowance by having two open. You can only pay into one of them each tax year.

If you have both, which should you pay into?

This depends on how much you think you’ll need the cash.

Until you turn 50, the Lifetime ISA is a better bet. That’s because you’ll earn interest on the bonus cash you pay in.

After 50, the Lifetime ISA stops paying bonus cash, so you’d be better off paying into a First Time Buyer ISA.

But if you need to access any of your savings for any reason other than buying a first home, the withdrawal penalties of the Lifetime ISA mean you’re far better off with a First Time Buyer ISA.

It’s a moot point after November 2029, however, with no new cash allowed into Lifetime ISAs after that point.

What other help is there for first-time buyers?

There are a series of schemes available to help people buy their first home.

These roughly break down into three areas — helping you save, helping you get a mortgage and cutting the price of the home you plan on buying.

To help you save there is the current Lifetime ISA, as well as the old Help-to-Buy ISA. You can’t open Help-to-Buy ISAs any more, but if you have one it will still pay a bonus on what you’ve saved into it if you use the cash as part of your deposit when buying a first home.

To help with your mortgage there’s the Mortgage Guarantee Scheme, which makes it easier for lenders to offer you a deal with a deposit of 5%. 

From April there’s also the Your First Home scheme in England. This offers a 20% equity loan to people on top of their deposit. It’s only available on some new-build homes, however, and rent is rue on that 20% after the first five years. We’ve got a full breakdown of the new First Home scheme if you want to learn more about it.

Other help available include Shared Ownership schemes – where you buy part of a home, and the local housing association buys the rest, charging you rent on the portion you don’t own, and regional schemes in Scotland, Wales and Northern Ireland letting you buy part of the home and the local government buying the rest.

Summary of the Lifetime ISA vs First Time Buyer ISA

	First Time Buyer ISA	Lifetime ISA
Age limit	You need to be 18 or over to open an account, but there’s no upper age limit.	You can only open one if you’re between 18 and 39, with no cash added after 50. New accounts closed to applicants, with new cash to existing accounts stopping in November 2029.
Contribution limits	£4,000 a year out of your overall £20,000 a year ISA allowance. No maximum amount on contributions over an individual’s lifetime.	£4,000 a year, within the overall £20,000 ISA allowance. Maximum contributions effectively capped at £128,000, (as no deposits are allowed after 50).
Multiple pots	Contributions allowed into one account per tax year, including a Lifetime ISA or First Time Buyer ISA.	Contributions allowed into one account per tax year, including a Lifetime ISA or First Time Buyer ISA.
Property price cap	£450,000	£450,000
Transfers between different types of first-time buyer ISA	No transfers between First Time Buyer ISA and Lifetime ISAs, but both can be used towards the same purchase. Transfers from a Help to Buy ISA into a First Time Buyer ISA allowed up to the contribution limit.	Transfer from a Help to Buy ISA into a Lifetime ISA allowed up to the contribution limit.
Transfers between the same type of accounts	Transfers allowed, apart from Stocks & Shares First Time Buyer ISAs to the cash version.	Transfers between Lifetime ISAs (Cash and Stocks & Shares) allowed.
Transfers between other ISA types	Transfers in allowed up to contribution limit. Transfers out are allowed, but lose the bonus eligibility.	Transfers in allowed up to the £4,000 annual limit. Transfers out allowed, but subject to the 25% withdrawal charge.
Timing of the bonus and withdrawal charges	Bonus paid at exchange and no withdrawal charge. Savers 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. Savers will have 90 days from the point of claiming the bonus to completion their purchase. Withdrawal charge of 25% on any other withdrawals before the age of 60.
Bonus eligibility	You need to have held the account for one year to get the bonus.	You need to have held the account for one year to get the bonus.
Must use with a mortgage	Yes.	Yes.
Account types available	Cash and Stocks & Shares.	Cash and Stocks & Shares.

Which is the best — First time Buyer ISAs or Lifetime ISAs?

There are only two ways the new First Time Buyer ISA is better than the Lifetime ISA.

First, if you’re over 39 years old and second if you want to dip in and out of your savings before you use them to buy a home.

In every other way the Lifetime ISA is as good or better than the First Time Buyer ISA.

Firstly, the fact the bonus is paid monthly means you earn interest on the bonus cash in a way you can’t with the First Time Buyer ISA.

Secondly, the flexibility to use the ISA after the age of 60 means that you can keep your bonus even if you don’t use it to buy a house or if the property costs more than £450,000.

Finally, the decision to freeze the first-purchase limit at £450,000 means that by the time you try to buy a home, which will be April 2030 at the earliest, there could well be fewer available at that price. That’s also true of the decision to keep the £4,000-a-year contribution limit.

All that said, the First Time Buyer ISA is a simpler account, and one where you won’t ever lose out if you need the money early, so might achieve its goal of getting more people to use it.

After all, why wouldn’t you use something that works like a normal ISA most of the time, but might give you a tidy bonus on top too if you use it to help buy a home?