The UK government has announced plans to replace the Lifetime ISA (LISA) with a new First Time Buyer ISA aimed at providing greater flexibility for savers preparing to purchase their first home. The move, unveiled by the Treasury, seeks to address concerns about the current LISA’s design and accessibility.

The existing Lifetime ISA allows individuals under 40 to save up to £4,000 annually, with the government adding a 25% bonus. Funds can be used either towards buying a first home or retirement, but withdrawing money for other purposes incurs a 25% penalty on all contributions. Critics have argued that this structure has led many holders to lose part of their savings rather than successfully using them to buy property.

In contrast, the proposed First Time Buyer ISA will be available to savers of all ages who have not yet purchased a home. The new product aims to provide more flexible saving options without withdrawal penalties. Savers will be able to open accounts with an initial payment of £1,200 and then contribute £200 monthly. Contributions will count toward the overall £20,000 annual ISA allowance. The government bonus will only be paid out when buyers use the savings for a property purchase.

The Treasury Select Committee highlighted last year that the LISA’s design was flawed, noting that more account holders have faced losses due to penalties than have successfully bought homes. The consultation document for the First Time Buyer ISA underlines these findings and suggests the new scheme is intended to better accommodate changing circumstances among savers.

Rachael Griffin, a tax and financial planning expert at Quilter, commented that the proposed replacement represents a step toward aligning savings products more closely with the experiences of aspiring homeowners, though she noted some issues still need clarification.

The announcement has met with some skepticism from opposition voices. David Simmonds, Labour’s shadow housing minister, criticized the government for lacking detail on the new scheme’s generosity compared to the existing LISA. He raised concerns that no clarity has been provided on whether the government will adjust the property price cap that currently limits eligibility for some buyers. Simmonds suggested the changes could amount to a stealth tax increase on homebuyers.

The government has yet to reveal a definitive timeline for the rollout of the new First Time Buyer ISA, but the initiative reflects ongoing efforts to revise housing market support tools in response to concerns about affordability and the challenges faced by first-time purchasers.