Editor's note: This brief was summarised by The Property AI Newsroom from a report by Mortgage Strategy. Read the original article for full details.

Government Announces Consultation on First Time Buyer ISA to Replace Lifetime ISA

The government has set out plans for a new First Time Buyer ISA, which is intended to replace the existing Lifetime ISA. The new product is currently under consultation and will be designed solely for first-time buyers, rather than serving both home purchase and retirement savings as the Lifetime ISA did.

The Lifetime ISA has faced criticism for its withdrawal penalties and the maximum property price limit, both of which have limited its uptake. According to the government’s consultation, the new ISA will be available to first-time buyers aged 18 and over, with no upper age limit. Unlike the Lifetime ISA, the First Time Buyer ISA will not impose penalties for early withdrawals. Instead, a government bonus will be paid on exchange of contracts when the funds are used to buy a first home.

Savers will be able to contribute up to an annual limit, which has not yet been specified, and these contributions will count towards their overall ISA allowance. The savings can be used to purchase any UK property up to a value that is still to be determined, provided the purchase is made with a mortgage. Cash-only purchases will not be eligible. Both Cash and Stocks & Shares versions of the ISA will be available. The government bonus will be calculated based on net contributions after any withdrawals, rather than the final account value.

The consultation also notes that existing Lifetime ISAs cannot be transferred to the new First Time Buyer ISA, but a Help to Buy ISA can be. It is possible to hold one of each ISA and use both towards the purchase of the same home, though subscriptions can only be paid into one.

The Treasury is consulting on the property price cap and the annual subscription limit. The current Lifetime ISA cap of £450,000 has not changed since 2017, and the consultation is considering whether this cap remains suitable.

Letting agents and inventory clerks should be aware that these proposed changes could impact the number and profile of first-time buyers entering the UK property market, depending on the final details of the scheme.