THE first-time buyer ISA (FTB ISA) has been welcomed as a “better direction” than the Lifetime ISA (LISA) – but experts have warned it won’t solve the housing crisis.
The Treasury has launched a consultation on a new FTB ISA, proposing a fresh government-backed savings scheme designed to help aspiring homeowners build a deposit without some of the restrictions that have dogged the LISA.
Under the proposals, savers would be able to make lump-sum contributions and receive a government bonus when contracts are exchanged rather than at completion.
The existing Lifetime ISA would remain available alongside the new product if the plans are implemented.
This comes as a 22% tax on the interest earned from uninvested cash held in a stocks and shares ISA will come in from April 2027.
The move comes amid growing criticism of the LISA, which has faced scrutiny over withdrawal penalties and concerns that property price caps have failed to keep pace with house prices in some parts of the country.
LISA is the current tax-free savings account for those aged 18 to 39. It is designed to help savers buy a home or prepare for retirement.
Government figures show unauthorised withdrawals have continued to rise, prompting questions over whether the product is meeting its original objective of helping more people onto the property ladder.
While many experts have welcomed the direction of travel, several have warned that another savings product alone will not solve the deeper challenges facing first-time buyers.
High house prices, deposit requirements, affordability pressures and a shortage of suitable homes continue to present significant barriers to homeownership.
Others have questioned whether introducing another government-backed savings scheme risks adding further complexity to an already crowded landscape that has included Help to Buy, Help to Buy ISAs and Lifetime ISAs over the past decade.
This is a much better direction than the Lifetime ISA
Rebecca Robertson, Independent Financial Adviser, Planner and Director at Evolution Financial Planning, said the LISA needed updating.
She added: “The consultation paper says that the LISA hasn’t worked, which I agree. Apparently the number of unauthorised withdrawal charges is increasing year on year, reaching 8% of all accounts opened in 2024-25. More LISA holders have lost a part of their original savings than have used it to purchase a house.
“In addition, provider data shows that thousands of individuals are making multiple unauthorised withdrawals. It hasn’t been used for buying a home, LISA was replacing Help to Buy which also didn’t work. Why? the cost of living, mortgage interest rates and people worried about house prices.
“This has caused them to use the savings they had started out intended for a house purchase. It would be better to lift inheritance tax gifting rules for grandparents for wealth to be passed on more easily, or create more shared ownership opportunities to scale up over time purchasing a whole property rather than in one go.”
Evren Ergin, Founder And Developer at ValuQ, said the new ISA is not going to solve the issues of the property market.
He added: “A better way to save a deposit is welcome, but it treats the symptom, not the disease. The first-time buyer problem is not only that they cannot save fast enough. It is what they are being helped to buy. The entry rung, the flat, has become the weakest part of the market.
“Our Land Registry analysis shows flats fell in value in 22 of 24 towns we studied while houses rose, and the typical flat is now held 9.1 years before resale, up from 2.8 in 2000. So a scheme that speeds people onto that rung can be subsidising them into a home that falls in value and is hard to sell.
“Help with the deposit, by all means. But pair it with fixing the entry-level itself: leasehold reform, honest service charges, and an end to flats that trap their owners. Otherwise we are getting first-time buyers through the door of a property that is quietly losing its value.”
It treats the symptom, not the disease
Jamie Elvin, Director at London-based Strive Mortgages, said the price cap needs to be set correctly or London and the South East could be out of reach.
He added: “This is a better direction than the Lifetime ISA because it has a clearer purpose: help first-time buyers build a deposit without trapping them if life changes. The LISA tried to be a house deposit product and a retirement product at the same time, which was always an awkward compromise.
“The principle is sensible, but the detail matters. If the property price cap is too low, it risks being useless in London and the South East. And if it’s too rigid, it becomes another scheme that sounds good in theory but doesn’t work in practice. If the LISA was a hybrid, this needs to be a workhorse.”
Graham Nicoll, Financial Planner, Chartered FCSI at NCL Wealth Partners, said LISAs being scrapped was needed, but the government should stop tinkering.
He added: “Replacing the Lifetime ISA is a long-overdue victory for common sense, but the government risks shooting itself in the foot before the new scheme even launches. Scrapping the 25% withdrawal penalty is what hard-working savers deserve as it means young people will no longer be punished just for needing to access their own hard-earned cash when life takes an unexpected turn.
“However, Whitehall’s constant tinkering with the savings rulebook has created a real crisis of confidence. Moving the goalposts yet again with a brand-new product for 2028 leaves savers completely exposed to the whims of future governments.
“If the rules can be rewritten today, there is absolutely nothing stopping a future administration from slashing the bonus or squeezing property caps tomorrow. This endless political meddling risks paralyzing aspiring homeowners, who may choose to stay away entirely rather than trust a scheme that could be ripped up before they even save enough for a deposit.”
Replacing the Lifetime ISA is a long-overdue victory for common sense
Michelle Lawson, Director at Fareham-based Lawson Financial, said the government risks causing more confusion.
She added: “Yet another initiative… After Help to Buy, Help to Buy ISA, LISA and now the FTB ISA. Rather than potentially helping this is just causing further confusion for first-time buyers in an already complex and complicated market.
“Simplicity and continuity is what is needed in any element of financial planning, not just keep moving the goalposts and reinventing the wheel.”
Nouran Moustafa, Practice Principal & IFA at Roxton Wealth, said the new ISA is welcome, but it needs to be done right.
She added: “This is a much better direction than the Lifetime ISA. The LISA tried to be a house deposit account and retirement product at the same time, then punished people for needing their own money when life went wrong. That was always a strange design.
“A first-time buyer ISA should do one job well: help people build a deposit without trapping them. Paying the government bonus only when someone buys, while allowing penalty-free access to their own savings beforehand, is far more sensible. But the detail matters. The property-price cap, annual saving limit and bonus rate are still unknown. If the cap stays too low, it will be useless in large parts of London and the South East.
“My biggest concern is the proposed ban on moving money from a stocks-and-shares FTB ISA into cash close to purchase. Buyers need to de-risk when exchange is approaching, not gamble with their deposit. Simpler is good. Simpler but rigid is not.”
