Government updates first time buyer ISA rules: What it means for your deposit timeline
Whether you are looking to buy a home on the open market or exploring affordable homeownership schemes, saving for a deposit is often the biggest hurdle on the journey to getting your keys.
For years, the Lifetime ISA (LISA) has been a popular tool, offering a free 25% government boost on your savings. However, the government has launched a public consultation on a brand-new First Time Buyer ISA set to replace the LISA in April 2028.
If you’re currently saving or planning to start soon, there is no need to panic. Here is everything you need to know about what’s changing, what’s staying the same, and why you shouldn’t pause your home-buying goals.
Key takeaways
- The timeline: The Lifetime ISA is scheduled to be replaced by the new First Time Buyer ISA in April 2028.
- No sudden cut-off: Existing LISA savers can keep contributing to their accounts indefinitely, even after the new product launches.
- No more penalties: The proposed 2028 ISA aims to eliminate the 25% withdrawal penalty, meaning you won’t lose your own capital if your plans change.
- Age limits scrapped: The new account will be open to anyone over 18, removing the current LISA rule that requires you to open the account before turning 40.
- Act now to maximise returns: You can still open a LISA today to benefit from monthly compounding interest on your government bonuses between now and 2028.
LISA vs the new First Time Buyer ISA: The direct comparison
To help you map out your home-buying savings strategy, here is how the upcoming 2028 product stacks up against the current Lifetime ISA:
| Feature | Current Lifetime ISA (LISA) | New First Time Buyer ISA (from April 2028) |
|---|---|---|
| Who can use it? | First time buyers & retirement savers aged 18-39 | Only first time buyers aged 18+ (no upper age limit) |
| Withdrawal penalty | 25% on ineligible withdrawals (can result in losing ~6% of your own savings) | None (proposed) |
| 25% government bonus | Paid monthly (earns interest/investment growth over time) | Paid as a lump sum at the time of your house purchase |
| Transfer options | Cannot be transferred to the new 2028 ISA | Can accept Help to Buy ISA transfers |
The big changes explained
1. Removal of the withdrawal penalty
The current LISA structure has a major sting: if you withdraw money for anything other than buying a home (up to £450,000) or for retirement, you face a 25% penalty. Because this applies to the whole pot, you lose the government bonus plus roughly 6% of your own hard-earned savings.
The proposed First Time Buyer ISA eliminates this penalty, giving you total flexibility if your life circumstances change.
2. No upper age limit
Currently, you must be under 40 to open a LISA. Recognising that the average age of first time buyers is rising and saving a deposit takes longer, the government plans to scrap the upper age limit for the new ISA, ensuring older first time buyers aren’t locked out of free government support.
3. A shift in how bonuses are paid
This is a vital detail for your savings timeline. With a standard LISA, your 25% bonus is paid monthly. If you put in £4,000, you quickly get a £1,000 bonus added to your account, which starts earning interest immediately.
With the new 2028 ISA, the bonus will only be paid as a lump sum when you complete on your property. This means you miss out on years of compounding interest on that government bonus.
The savings trick: At Tembo, we offer a 4.00% AER* (variable) Cash Lifetime ISA. By saving with us now, your monthly government bonuses could actively grow and compound over the next few years, potentially increasing your deposit pot each year.
*Includes a bonus of 0.40% AER for the first 12 months (for new customers only).
Should you start saving now or wait until 2028?
Data shows that first time buyers utilising a LISA manage to buy their homes up to three years earlier than those who don’t. Yet, only 17% of first time buyers currently use one, meaning the vast majority are leaving an estimated £3,000 to £5,000 in free cash on the table.
Because existing LISA holders are guaranteed the right to keep contributing indefinitely, there is absolutely no reason to wait until 2028 to start saving. Martin Lewis has been encouraging first time buyers to open a Lifetime ISA with just £1 for this very reason.
If you open a Lifetime ISA today, you get the best of both worlds:
- Immediate 25% monthly bonuses that grow over time.
- Access to smart saving tools, like Tembo’s “Team Up” feature, which allows couples, friends, or siblings to track their joint deposit progress together while keeping their individual cash safely separated.
Tembo savers also gain access to fee-free mortgage advice from our award-winning brokers, helping you seamlessly transition from saving your deposit to securing a mortgage for your future home.
Fee-free mortgage advice is subject to eligibility; T&Cs apply. Withdrawals from a Lifetime ISA for any purpose other than buying a first home (up to a value of £450,000) or for retirement (60+) incur a 25% government penalty, meaning you may get back less than you paid in.
Next steps for savers
For now, the rules remain exactly as they are. You can open a new LISA, continue your regular contributions, and watch your deposit pot grow.
If you want to maximise your savings before the market shifts, starting your journey today with a top-tier provider like Tembo ensures your money works as hard as possible while you find the perfect property. If you’d like to learn more about the housing market for first time buyers, visit our reports page, where we analyse thousands of mortgage applications to provide insights into the latest housing market trends.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year. Tax treatment depends on individual circumstances and may be subject to change in the future. This content is provided by Tembo. Tembo Money Limited is authorised and regulated by the Financial Conduct Authority in relation to mortgages and insurance advice (reference number 952652). Tembo Savings Limited provides individual savings accounts and is authorised and regulated by the Financial Conduct Authority (reference number 928010).HMRC-approved ISA Manager (reference number Z2046). We are private limited companies registered at 18 Crucifix Lane, London, SE1 3JW.
