The government plans to launch a new savings scheme for first-time buyers to replace the Lifetime ISA.
A consultation will be launched in early 2026 with the aim of creating a simpler product, in ISA format, to help people saving for a deposit for their first home.
The plans, announced in the Autumn Budget, have been welcomed by mortgage and financial experts who believe a replacement for the outdated Lifetime ISA (LISA) is long overdue.
Introduced in 2017, the LISA is a savings account that allows first-time buyers to save up to £4,000 tax-free every year. On top of the interest they earn from their provider, the government also pays a bonus of 25%.
In its current form, the LISA can also be used for pension savings. However, it is only available to savers under the age of 40 and there are certain limitations that mean it will no longer work for some people.
One concern is the withdrawal penalty, which means savers who had to cash out their savings would lose the entire bonus, plus a little more.
Experts have therefore been calling for its reform for some time.
Rachael Griffin, tax and financial planning expert at Quilter, said: “As it stands, the Lifetime ISA has tried to serve two different purposes – saving for retirement and saving for a first home – but has failed to effectively achieve either purpose.
“While the 25% government bonus has been undeniably popular, the product itself has serious shortcomings and the withdrawal penalty has punished savers at a time when they were facing significant financial pressure.”
Another concern is the house price limit of £450,000, meaning buyers can only use the LISA on a property below this price.
Griffin said the fact this has remained unchanged since 2017 shows it is “detached from reality” in many parts of the country.
“This has meant that many people who have been diligently saving, especially those living in London and the South East, are unable to use their LISA for the properties they need without being fined,” she added.
Dan Coatsworth, head of markets at AJ Bell, wondered whether the new savings scheme could look like a Help to Buy ISA in a new guise.
“The government is keen to help more people get into the housing market and any financial incentives to support those hoping to achieve this dream will be welcome,” he added.
But he was concerned about what would happen to those who already had savings in LISAs.
“Those using the account for retirement savings will want to know if they are stuck with an old account, or if they can switch to another account,” he said.
“Through this consultation process, the government must ensure that consumers come first and that the first priority is that existing Lifetime ISA customers achieve a good outcome.”