Government issues major update on new first time buyer ISA that'll replace Lifetime ISAs
The government has confirmed what will replace the Lifetime ISA (LISA). In the Autumn Budget on Wednesday 28 October 2026, Chancellor John Healey said: “I’m announcing that a first-time buyer ISA will replace the Lifetime ISA.” On the same day, the Treasury published its response to the summer consultation, which set out how the new account will work.
What’s changed since August? The government has confirmed that a new First Time Buyer ISA will replace the Lifetime ISA in April 2029, a year later than expected. From 29 October 2026, the penalty for using a Lifetime ISA on a first home costing more than £450,000 is cut from 25% to 20%.
If you already have a LISA, you can keep it open and keep paying in on the current terms after the new account arrives. If you’re 18–39 and don’t have one yet, you can still open one today.
Withdrawals from a Lifetime ISA for any purpose other than buying a first home (up to a value of £450,000) or for retirement (60+) incur a 25% government penalty (20% if you’re buying a first home costing more than £450,000), meaning you may get back less than you paid in.
Key takeaways
- The Lifetime ISA is being replaced by a new First-Time Buyer ISA in April 2029.
- Existing Lifetime ISAs can stay open, and you can keep paying in.
- From 29 October 2026, the penalty on homes over £450,000 drops from 25% to 20%.
- The new ISA has no upper age limit, and the 25% bonus is paid when you buy.
- Don’t wait until 2029. If you’re 18–39, you can open a Lifetime ISA now and start getting the bonus.
What changed for Lifetime ISAs?
From 29 October 2026, the penalty for buying a first home above the £450,000 cap has been reduced. If you meet the other rules but your home costs more than £450,000, you can now withdraw your LISA with a 20% charge instead of 25%.
That difference matters. Under the old 25% charge, you lost the bonus and around 6% of your own money. The 20% charge only takes back the government bonus, so your own savings are protected.
Withdrawals for any other reason still carry the 25% charge. The exceptions are buying an eligible first home up to £450,000 and taking money out from age 60.
Save with the market-leading Cash Lifetime ISA
Earn 4.25% AER (variable) on your savings with the Tembo Cash Lifetime ISA - that's hundreds more in interest towards your house fund vs saving with the closest competitor over a 5 year period!
What will replace the LISA?
The government is now the process of running a consultation on a new, simpler ISA aimed only at first-time home buyers. This is expected to eventually replace the current Lifetime ISA around April 2028. This means the new version of the LISA won’t be suitable for people saving toward retirement.
This move is meant to simplify the product for its core purpose - getting more people onto the property ladder (which also happens to be our mission) - but it is a big shift away from the current dual-purpose design.
There are also other changes...
What is the new First-Time Buyer ISA?
The FTB ISA is a simpler account for one purpose: buying your first home. Unlike the LISA, it can’t be used for retirement saving. So far, the details we know about the proposed new ISA are:
No upper age limit
At the moment, you have to open a LISA before your 40th birthday. The FTB ISA removes that limit, which reflects the fact that first-time buyers are getting older and deposits take longer to save.
No withdrawal penalty
The bonus is only paid when you buy, so the new ISA won’t have a withdrawal charge. If your plans change, you can take your own money out without losing any of it. You just won’t get the bonus.
How the bonus will work
This is the biggest change from the consultation. The 25% bonus will be calculated on your final balance, including any interest or investment growth, rather than just what you paid in. It’s paid at exchange of contracts, and you then have 90 days to complete. The maximum bonus is £20,000.
Because the bonus is worked out on your final balance, the interest rate on your account matters even more. A higher rate means more interest, and that interest gets the 25% bonus too.
What stayed the same: the £450,000 cap
Most respondents to the consultation, including around 90% of the financial firms that commented on it, wanted the £450,000 property cap raised, linked to house prices or set by region. The government has kept it at £450,000 for both products, saying this keeps support targeted at typical first-time buyers. For buyers in London and the South East, that remains a real limitation.
One of the latest developments is the suggestion from the Treasury consultation that the new first-time buyer ISA will have no upper age limit. Currently, the Lifetime ISA has an upper age limit of 40 years old for new savers, although you can keep paying into your Lifetime ISA until you're 50. The removal of the upper age limit is to reflect the fact that the average age of first-time buyers is rising, and it often takes many years to save a deposit.
Can I transfer my Lifetime ISA to the new First Time Buyer ISA?
No. You won’t be able to transfer a LISA into an FTB ISA, or the other way round. You can use money from both accounts towards the same home purchase.
If you have a Help to Buy ISA, you’ll be able to transfer the full balance into an FTB ISA between 6 April 2029 and 1 December 2030, without it counting towards your annual limit. You can also transfer money in from other ISAs, but that counts towards the £4,000 annual limit.
Should I still open a Lifetime ISA?
If you’re eligible and saving for your first home, yes. The new ISA isn’t coming until April 2029, and a LISA gets you a 25% government bonus now, at up to £1,000 a year. Your LISA stays open after the new account launches, and from April 2029 you could hold both and use them together towards the same purchase.
Our own research found that only 17% of first-time buyers use a Lifetime ISA, which means most are missing out on an estimated £3,000–£5,000 in free government support. LISA users also buy almost three years earlier than the average first-time buyer (age 29.2 vs 32).
Lifetime ISAs have helped thousands of first-time buyers build a deposit faster and get on the housing ladder sooner. Our own data shows that buyers using a LISA are able to purchase their first home around four years earlier than those who don’t. That’s not a marginal benefit, it’s transformative!
Richard Dana
CEO of Tembo
What this means for savers
For the moment, nothing changes:
- Existing Lifetime ISAs stay open
- Contributions can continue as normal
- Eligible savers can still open a new Lifetime ISA or transfer an existing one
The bigger decisions will come after the 2026 consultation (which has only just begun), once we know the rules, incentives and trade-offs of any replacement product.
Until then, Lifetime ISAs remain a powerful tool for first-time buyers and long-term savers alike. If you want to start saving for your first home, don’t hold off until 2028 when this new product comes in!
As ever, the right choice depends on your plans, your timeline, and how much flexibility you need along the way.
We’ll be keeping a close eye on the consultation and will continue to update you as further details come to light.
Transfer to the market-leading Lifetime ISA
Earn hundreds more in interest over 5 years vs the closest market competitor. Plus, fee-free access to our award-winning mortgage service when you’re ready to buy*.
You might also like
*Fee-free mortgage advice is subject to eligibility, see terms & conditions here.