The government has released details about its plans to launch a new ISA product to help first-time buyers save for their first home.
The First-Time Buyer ISA (FTB ISA) will replace the Lifetime ISA (LISA) which allows people to save up to £4000 a year for a property or retirement and receive a 25% government bonus.
FTB ISA is not for retirement savings
Unlike the Lifetime ISA, the FBA ISA would be available only to first-time buyers purchasing a home with a mortgage, removing the dual home-buying and retirement purpose offered by a LISA.
New FTB ISA plans
Savers would still get a tax-free government bonus, but it will be added to the account when the holder is ready to buy their first home. At the moment, the bonus is added to a LISA periodically.
The bonus will be based on how much a holder has paid in, minus any withdrawals and not on any investment growth. Since it will be paid when the account is about to be closed, the need for a withdrawal charge has been removed, which means the saver can withdraw funds, should circumstances change, without penalty. With LISAs, savers have to pay a 25% charge to withdraw any of their cash for any reason other than buying a home or retiring.
Will the FTB ISA property price cap change?
The FTB ISA annual allowance, the property price cap, and the level of government bonus offered have not yet been confirmed, as these are among the issues the government is seeking views on during the consultation period, which ends on 17 August.
It is hoped by many that the price cap will be increased from the LISA’s current £450,000 to take into account inflation, because, as property prices have steadily risen, many buyers face the risk of being priced out of the scheme’s property limit.
What will happen to existing Lifetime ISA and Help to Buy ISAs?
Under the new proposals, whilst LISAs will be withdrawn and cannot be transferred when the FTB ISA replacement is launched (no dates have been announced, but it is predicted to be April 2027 in the Chancellor’s Budget), existing LISAs will be able to continue as is and the savers would be able to use funds from both an existing LISA and a new FTB ISA towards the same house purchase.
For those with Help to Buy (H2B) ISAs, the plan is that these can be transferred into the new FTB ISA.
You can read the government’s full consultation paper here.
We’ll keep you updated as FTB ISA consultations progress
With changes within government, and the consultation only just getting started, it looks like it will be a while before the government confirms the full details of the FTB ISA. Once they do, we’ll let you know what they are and what they mean for first-time buyers going forward.
If you would like a quote on a property purchase and/or sale, please contact our Residential Property team on Reading: 0118 975 6622 or Henley: 01491 570 900, email residentialproperty@thpsolicitors.co.uk or complete our web form below.