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

Government Consults on FTB ISA to Replace Lifetime ISA

The government has launched a consultation on the introduction of a First Time Buyer ISA (FTB ISA) to replace the existing Lifetime ISA (LISA). The consultation findings indicate that the LISA’s dual-purpose design and withdrawal charges were not considered fit for purpose.

Financial planning professionals have responded to the consultation, noting that a more focused product aimed solely at helping first-time buyers could be easier to understand and use. The removal of the withdrawal penalty, which was a contentious feature of the LISA, is seen as a positive change. However, the replacement of the LISA means that under-40s will lose a tax-efficient savings route for later life.

Some experts have raised concerns that the new FTB ISA’s simplicity may come at a cost. It was highlighted that savers could lose out on investment growth they might have earned on the bonus while building their deposit, potentially leaving some first-time buyers with less money when purchasing a home.

The consultation also drew attention to ongoing challenges for first-time buyers, including high rents and elevated living costs, which make it increasingly difficult to save for a deposit. It was noted that homeownership is becoming a milestone reached later in life for many.

Questions remain about the details of the new scheme, particularly regarding the house price cap. The current cap of £450,000, unchanged since 2017, has become less relevant in many areas, especially London and the South East. This has resulted in some savers being unable to use their LISA for the property they need without incurring a penalty. The Skipton Group Home Affordability Index indicates that the average first-time buyer home will exceed the current cap in around 10% of local authority areas across Great Britain by the end of 2027.

Additionally, the consultation has not addressed the needs of self-employed individuals. While those with an existing Lifetime ISA can continue saving, there is uncertainty for self-employed workers and others without access to a workplace pension who may require a flexible retirement savings option in the future.