Copy article

Lifetime ISA could be scrapped: "no longer fit for purpose" reform of "confusing" LISA "well overdue"

Journalist: Laura Miller, Freelance

ended 26. November 2025

Government plans unveiled in the Budget could see the Lifetime ISA reformed or scrapped and replaced with a savings product just for first-time buyers, in a move welcomed by financial experts.

Hidden in documents released today as part of the Chancellor’s Budget announcement, the Government has said it will consult on reforming the Lifetime ISA – known as the LISA – and bringing in a replacement ISA product for first time buyers. 

“The government will publish a consultation in early 2026 on the implementation of a new, simpler ISA product to support first time buyers to buy a home. Once available, this new product will be offered in place of the Lifetime ISA”, the Budget papers said.

Experts have said the LISA’s rules are too confusing for people and reform is long overdue.

Andrew Montlake, CEO at London-based mortgage broker Coreco, said: “It is an excellent idea to introduce a new bespoke ISA targeted at first-time buyers who need that extra help to save for a deposit. For many, this is one of the toughest parts, especially with rents and the cost of living so high. 

“The issue with the current Lifetime ISA is that it is confusing to many as to how it can be used, and the fact it comes with severe penalties if money is withdrawn for other reasons. Separating an ISA for home buying from one for investment/retirement makes much more sense.”

The LISA currently acts as a two-way savings product – both to build up a deposit for a first home and to squirrel away money for retirement. It can be opened by anyone aged between 18 and 40 and you can put in up to £4,000 each year, until you’re 50.  

The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

You can withdraw money from your LISA if you’re buying your first home, aged 60 or over or terminally ill with less than 12 months to live. If you take out the money for any other reason you lose the bonus and pay a penalty.

Antonia Medlicott, founder and managing director at London-based Investing Insiders, said: “Reform of the current Lifetime ISA is well overdue as it is no longer fit for purpose, and should never have been bundled in with retirement savings as a dual-purpose product to begin with. Making this a 'first-time buyer ISA', solely for that purpose, is an improvement.”

However she also called for a rise in the cap for the maximum house price where you can use a LISA to make a purchase, in-line with the average price of first-time buyer homes everywhere, “including the most expensive regions”. 

Currently the Lisa has a house-price cap of £450,000.

“If not, the LISA quickly becomes irrelevant, or worse – a trap that savings go into, but can't be released from without paying a penalty,” Medlicott said. 

She also called for the penalty to be changed. “It shouldn't be the case that if you decide to withdraw your savings for something other than buying a house, you end up worse off than if you'd never saved in the first place,” Medlicott said.

Philly Ponniah, Chartered wealth manager and financial coach at Philly Financial, added: “A new savings product could help, but only if it’s simple and fair. The last thing young buyers need is another confusing scheme. What they need is one product that supports them, not punishes them when life changes.”
 

4 responses from the Newspage community

Copy all

Copy

Editor
Andrew Montlake
CEO at Coreco
It is an excellent idea to introduce a new bespoke ISA targeted at first-time buyers who need that extra help to save for a deposit. For many, this is one of the toughest parts, especially with rents and the cost of living so high.
The issue with the current Lifetime ISA is that it is confusing to many as to how it can be used, and the fact that it comes with severe penalties if money is withdrawn for other reasons. Separating an ISA for home buying from one for investment/retirement makes much more sense.
Copy

Editor
Philly Ponniah
Chartered Wealth Manager and Financial Coach at Philly Financial
The Lifetime ISA doesn’t need scrapping. It needs fixing. Right now it has too many traps. If buyers use it in the wrong way, even by mistake, the withdrawal penalty takes away more than the bonus ever gave. The house price cap is also out of touch with real market prices. Reforming it makes far more sense. The cap should rise, the penalty should be reduced, and the rules should be far clearer so first time buyers don’t get caught out. A new savings product could help, but only if it’s simple and fair. The last thing young buyers need is another confusing scheme. What they need is one product that supports them, not punishes them when life changes.
Copy

Editor
Samuel Mather-Holgate
Managing Director & IFA at Mather and Murray Financial
No surprise this one’s going. The Lifetime ISA was little known about, but the best way to save for your retirement, if you met the criteria. There was controversy about the penalties if you wanted to access your cash for something other than the stated reasons. Now, Labour will replace this with a specific first-time buyer ISA, but for sure it won’t be as generous.
Copy

Editor
Antonia Medlicott
Founder & MD at Investing Insiders
It's welcome news that the government is going to consult on the implementation of a new, simpler ISA product to support first time buyers. Reform of the current Lifetime ISA is well overdue as it is no longer fit for purpose, and should never have been bundled in with retirement savings as a dual-purpose product to begin with.

Making this a 'first-time buyer ISA', solely for that purpose, is an improvement. But there must also be a rise in the cap for the maximum house price, and it must be in-line with the average price of first-time buyer homes everywhere, including the most expensive regions. If not, it quickly becomes irrelevant, or worse - a trap that savings go into, but can't be released from without paying a penalty. I hope to see the penalty changed as it shouldn't be the case that if you decide to withdraw your savings for something other than buying a house, you end up worse off than if you'd never saved in the first place.