First-time buyer Isa v lifetime Isa – which one should you choose?
Experts are advising first-time buyers to open a lifetime Isa now rather than wait for the government's planned first-time buyer Isa, which is expected to replace it but may offer less generous terms. The current lifetime Isa provides a 25% government bonus on savings up to £4,000 a year, but the new account is unlikely to match this benefit fully, meaning delaying could cost savers money in lost bonuses and investment growth.
The lifetime Isa lets those aged 18 to 39 save up to £4,000 annually until age 50, with a monthly 25% government top-up capped at £1,000 a year, though funds can only go towards a property costing £450,000 or less without incurring a 25% penalty. The replacement, not expected before 2028, will reportedly have no upper age limit or withdrawal charges, but will pay its bonus as a lump sum at purchase rather than monthly, based only on contributions rather than final fund value — a change one expert calculates could cost a saver over £3,600 in lost growth over 10 years. Key details, including the bonus rate, contribution limit and property price cap for the new Isa, remain unconfirmed.
- Lifetime Isa to be replaced by new first-time buyer Isa, likely from 2028.
- Experts say open a lifetime Isa now rather than wait.
- New Isa's lump-sum bonus could leave savers worse off long-term.
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Lifetime Isas were introduced in 2017 to help people aged 18 to 39 save either for their first home or for retirement, with the government adding a 25% bonus on top of whatever is saved, up to £4,000 a year. That bonus has made the account popular with first-time buyers, but it comes with restrictions, including a limit on how expensive a property can be before penalties apply.
The government has said it plans to bring in a new first-time buyer Isa to replace the lifetime Isa for house-buying purposes, though this is not expected to arrive before 2028 and many of its terms have not yet been confirmed. Because it is unclear whether the new account will match the existing bonus, financial advisers are weighing up whether savers are better off starting a lifetime Isa now rather than waiting.
This matters because the choice affects how much money first-time buyers could end up with towards a deposit, at a time when raising enough for a house purchase is already a significant hurdle for many younger savers.
Both sides, in good faith
The strongest fair case each way — we don't pick a winner.
The case for
Those who favour opening a lifetime Isa now argue that its terms are already fixed in law and well understood, whereas the replacement scheme remains speculative and is not due before 2028. A monthly 25% bonus that compounds alongside investment growth over several years is, on this view, worth more than waiting for an account whose bonus may be calculated only on contributions and paid as a single lump sum at purchase. For anyone who already fits the lifetime Isa's criteria – aged 18 to 39 and buying a home worth £450,000 or less – delaying is a real opportunity cost, since each year not saved is a year of forgone government top-up and growth that cannot be recovered later.
The case against
Others reasonably argue that the decision is less clear-cut for savers who fall outside the lifetime Isa's constraints or who value flexibility over an immediate bonus. Someone over 39, buying a more expensive property, or unsure whether they will complete a purchase may see real merit in a scheme reportedly free of upper age limits and withdrawal penalties, even if its bonus proves less generous overall. Since key details of the new Isa – the bonus rate, contribution limit and price cap – are still unconfirmed, cautious savers might reasonably prefer to wait for certainty, or to keep options open, rather than commit money to an account whose 25% penalty could bite if their circumstances change.