Editor's note: This brief was summarised by The Property AI Newsroom from a report by PropertyWire. Read the original article for full details.
Government Consults on First Time Buyer ISA to Replace Lifetime ISA
The government has published consultation proposals to replace the Lifetime ISA with a new First Time Buyer ISA, removing the retirement savings component and withdrawal penalties that have been criticised since the Lifetime ISA’s launch in 2017. Under the proposed changes, savers would receive a government bonus only when funds are used to purchase a first home with a mortgage.
The new framework would eliminate the penalty currently imposed on Lifetime ISA holders who withdraw money for reasons other than buying a first home or retirement. Financial services firms have responded positively to the consultation, but caution that high property prices remain a significant barrier to homeownership.
Rebecca William of Rathbones noted that the Lifetime ISA’s dual purpose—saving for both a home and retirement—often led to confusion. She also highlighted that the proposed First Time Buyer ISA would not offer the Lifetime ISA’s tax-free withdrawal benefits from age 60. Rathbones’ research indicates that 60% of the so-called sandwich generation expect to delay retirement due to financial pressures from supporting both children and ageing parents.
Property Price Cap and Industry Response
Paula Higgins, CEO of HomeOwners Alliance, welcomed the removal of withdrawal penalties but raised concerns about the unchanged £450,000 property price cap, which has been in place since 2017. Higgins pointed out that buyers in the most expensive markets may be penalised under the current cap, and called for the Treasury to update it in line with house prices. Research from HomeOwners Alliance shows that 1.9 million aspiring homeowners do not believe they will achieve homeownership like their parents, highlighting the need for effective support for first-time buyers.
Skipton Building Society, which launched the first cash Lifetime ISA in 2017 and currently serves over 160,000 LISA savers, reported that the product has helped over 314,000 first-time buyers secure property. Jasvinder Gakhal, CEO at Money at Skipton Building Society, described the consultation as “a step in the right direction.” The proposed changes also include scrapping the upper age limit and reviewing the property price cap.
The consultation period remains open as the government seeks feedback on the proposed framework. The outcome could affect funding options for first-time buyers, particularly in regions where property prices have outpaced the current cap.
Source: PropertyWire