LISA Changes 2026: What First-Time Buyers Need to Know
The government plans to replace the Lifetime ISA with a new First Time Buyer ISA. There is no confirmed launch date yet, but the government’s Tax Update 2026 confirms that new LISAs can still be opened until the replacement arrives, and existing account holders can keep saving under current rules indefinitely. There should be no gap where neither product exists.
For most first-time buyers, the practical questions matter more: what happens to money already saved, whether you can still open a LISA now, and whether withdrawing early would cost you money you do not need to lose.
What Changes Are Happening to the Lifetime ISA?
The government published its consultation on the new First Time Buyer ISA in June 2026. The consultation closes on 18 August 2026, so key details remain unconfirmed, including the new annual contribution limit, bonus rate, and property price cap. Those will be confirmed at a future fiscal event.
Under today’s LISA rules, you must make your first payment before turning 40. You can then contribute up to £4,000 each tax year until you turn 50, with the government adding a 25% bonus worth up to £1,000 a year. The account can be used towards a qualifying home costing no more than £450,000.
The proposed First Time Buyer ISA would remove the upper age limit. Anyone aged 18 or over could open one, provided they are a UK resident buying their first home with a mortgage.
People are already using LISAs to buy. HMRC recorded 87,250 account holders withdrawing for a first-home purchase in 2024/25, around 30,500 more than the previous tax year.
How Would the Bonus Work Under the New Account?
With a current LISA, the 25% bonus lands in your account as you save. Under the proposed First Time Buyer ISA, it would build up in the background and only be paid when you withdraw to buy, with 90 days from claiming the bonus to complete the purchase.
The withdrawal penalty would also disappear from the new account. Right now, taking money out for anything other than a qualifying first-home purchase, retirement from age 60, or terminal illness triggers a 25% charge on the full amount withdrawn. That does not simply claw back the bonus. It takes some of your own savings too.
Take a £10,000 balance made up of £8,000 you contributed and a £2,000 government bonus. A 25% withdrawal charge removes £2,500, leaving you with £7,500. You lose the entire bonus and £500 of the money you originally saved.
Under the current proposal, the replacement account would carry no withdrawal charge. You could take your savings out if your plans changed, but you would only receive the government bonus when using the funds for a qualifying first-home purchase.
Why Is the LISA Being Replaced?
The withdrawal charge is the central problem. Government research found that financial difficulties were commonly cited by people making unauthorised withdrawals, yet the charge still removes the bonus and a slice of the saver’s own contribution.
The Treasury Committee concluded that combining first-home saving and retirement planning in a single account creates unnecessary complexity. A savings approach suited to buying in three years looks very different from one built for retirement decades away.
The £450,000 property cap has not changed since the LISA launched in 2017. Most first-time buyers across the country remain below it, but in parts of London, a property costing slightly too much can shut buyers out of the bonus entirely.
The proposed account is designed to separate the two jobs. It would support first-time buyers saving for a property purchase, while existing LISAs would remain available to current holders using them for later life.
What Happens to Your LISA Balance When the New Account Launches?
Your existing LISA will not disappear. The government has confirmed that current holders can keep their accounts and continue saving under existing rules indefinitely, including using their balance and any bonus already received towards a qualifying first-home purchase.
Under the current proposal, you would not be able to transfer your LISA balance directly into the new account. The government’s reasoning is that LISA contributions have already earned a bonus, so moving them into another bonus-paying account could reward the same savings twice.
You would be able to hold both accounts and put funds from each towards the same purchase. However, you could only contribute to one of them in any given tax year. That gives existing holders a choice: stay with the LISA or, once the replacement launches, stop contributing to it and switch to the new account in a later tax year. Either way, your existing balance stays where it is.
If you have been using a LISA for retirement, the proposed new account would not replace that function. It is intended solely for buying a first home. Current rules still allow qualifying withdrawals from a LISA from age 60 without the 25% charge.
Should You Withdraw From Your LISA Before the Changes Take Effect?
In most cases, no.
The 25% charge still applies to non-qualifying LISA withdrawals, and the current consultation does not propose removing it from existing accounts. Withdrawing early because a replacement has been announced typically means paying a charge you do not need to pay.
Withdrawing your balance and paying it into a First Time Buyer ISA once it launches would not be a clean workaround either. You would lose part of your savings to the LISA charge, your contribution could be restricted by whatever annual limit is eventually confirmed, and the new account would need to have been open for at least 12 months before its bonus could be claimed.
If you hold a Cash LISA or Stocks and Shares LISA, keep an eye on provider updates as the consultation develops. There is no government deadline requiring you to close the account.
One point worth flagging if you are close to buying: a LISA must have been open for at least 12 months before a charge-free first-home withdrawal. Taking the money out yourself rather than going through your conveyancer can also trigger the charge unexpectedly.
Should First-Time Buyers Still Open a LISA in 2026?
For many, yes.
Opening one now starts the 12-month clock. You can currently open a LISA between the ages of 18 and 39, contribute up to £4,000 a year, and receive a 25% government bonus worth up to £1,000 annually towards a qualifying purchase. New LISAs can continue to be opened until the replacement is available.
Before opening one, consider when you expect to buy and what your target property is likely to cost. The £450,000 cap applies across the UK. The average price paid by a first-time buyer in Bristol was £315,000 in April 2026, a provisional ONS figure, which sits comfortably within that limit. But an average cannot tell you whether the specific home you want will qualify. If your likely purchase price is close to or above £450,000, factor that in before committing your deposit savings to a LISA.
Ready to Buy Your First Home in Bristol?
Working out how your LISA fits into your deposit is only one part of buying your first home. You also need to know what you can borrow, which lenders will work with your circumstances, and how the deposit, mortgage and purchase timeline fit together.
That is where Mortgaged comes in. Our first-time buyer mortgage service covers everything from finding the right lender to keeping your application moving through to completion. We search more than 10,000 products from over 100 lenders and take the time to understand your situation before making any recommendations.
Contact us today to begin your journey to owning your first home.