Government issues major update on Lifetime ISAs

No rush: Lifetime ISAs aren’t going anywhere (yet)

If you already have a Lifetime ISA, you can continue contributing to it indefinitely. That’s true whether you’re saving for your first home or building a pot for later life. There’s also nothing stopping eligible savers from opening a new Lifetime ISA before any replacement product launches, which isn’t expected until around April 2028 after a public consultation and legislative process.

In short, there’s no sudden cut-off date, and no need to panic-switch your savings strategy. Keep making the most of the 25% government bonus!

A new first-time buyer ISA is on the way

As outlined in the Autumn Budget, the government is in the process of runninga 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...

Removal of the penalty

One of the biggest frustrations many savers have with the Lifetime ISAs is the withdrawal penalty. Under the current model, if you take money out for anything other than buying an eligible first home (under £450,000) or funding retirement, you don’t just lose the government bonus, you also lose some of your own savings - around 6%. This is because the 25% withdrawal penalty is on everything you take out, not just your government bonuses.

So it’s brilliant to see that officials have indicated that the new product would remove this withdrawal penalty altogether, meaning first-time buyers can access their savings in full if their plans change.

You might like: When can I withdraw from my Lifetime ISA?

Changes to the bonus payment

Under the new plan, the 25% bonus won’t be paid monthly anymore. Instead, the bonus will be paid as a lump sum when you go to buy your first home. This might seem like a small detail, but there’s a practical difference: you’ll no longer benefit from monthly bonuses adding up over time and earning interest or investment growth. That could reduce the overall value of your savings compared with the current setup.

For some savers, that might feel like a trade-off - simpler bonus payment, but potentially less return on your overall savings. This makes saving into a Lifetime ISA with a competitive interest rate vital to making sure your money works as hard as possible.

There are a number of questions that haven’t been answered yet, like:

• Whether the property value limit (currently £450,000) will be adjusted
• Whether the bonus will remain at 25%
• Whether the annual contribution limit will stay the same. 

Right now, we don’t know the answers; these details will emerge over the coming months.

Tembo’s take

These proposed changes represent a clear shift in how the government wants to support first-time buyers, and we’re really pleased to see a renewed focus on helping people onto the property ladder with greater flexibility.

The problem with the Lifetime ISA has never been the principle. It’s the design. A frozen £450,000 property cap and a punitive withdrawal charge have left many responsible savers locked out or unfairly penalised as house prices and life circumstances have changed.

Reform is not only sensible, but it’s overdue. Removing the retirement element and eliminating penalties that eat into people’s own savings will certainly simplify the product and make it fairer. But any replacement must preserve what makes the LISA powerful: meaningful incentives to save early and consistently, and the ability for savings to grow over time.

At a moment when homeownership is slipping further out of reach for younger generations, this should be about strengthening one of the few tools that genuinely works, not stripping it back. 

The Lifetime ISA must not disappear or become irrelevant when it is still so badly needed. It needs to be thoughtfully modernised so it reflects today’s housing market and the financial reality facing first-time buyers.

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, 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.