Lifetime ISA or First Time Buyer ISA: which could leave you better off?

The government is replacing the Lifetime ISA with a new First Time Buyer ISA in April 2029. Both offer a 25% government bonus to help you buy your first home. But there's an important difference that could make the Lifetime ISA worth opening while you still can.

Saving for your first home? A little help from the government could make a big difference to your deposit.

For every £4 you save into a Lifetime ISA (LISA), the government adds another £1, up to £1,000 a year. That's potentially thousands of pounds towards your first home.

From 6 April 2029, the Lifetime ISA will be replaced for new savers by a First Time Buyer ISA. The new account will also offer a 25% government bonus, but there are differences in how and when you receive it — and what you can do with your savings later.

So, which could leave you better off? Let's look at the numbers.

First, what's changing?

Both ISAs will allow you to save up to £4,000 a year and qualify for a 25% government bonus.

The main differences are:

• Lifetime ISA: The government adds its bonus as you save. You can use the money towards your first home, keep it for retirement, or do both. You must open a LISA before turning 40, and can continue contributing and earning bonuses until age 50.
• First Time Buyer ISA: The government pays its bonus when you buy a qualifying first home, with a maximum bonus of £20,000. There's no upper age limit, but you can't use it to save for retirement.

Both schemes have a £450,000 property price limit for qualifying purchases.

And here's something important: if you open a Lifetime ISA before the new scheme arrives, you'll be allowed to keep it and continue saving under the existing rules.

Which could give you the bigger house deposit?

Let's say you're 25, and you put £200 a month into an ISA for five years.

You'll have saved £12,000 of your own money. With a 25% government bonus, that becomes £15,000 — even before any interest or investment growth.

But what if your money grows while you're saving?

These are simplified illustrations, not forecasts. They assume equal, constant annualised growth, monthly contributions and no charges. Actual returns will vary, and investments can fall in value.

Surprised that the figures are the same?

The reason is that although the LISA bonus arrives while you're saving, the new ISA's bonus will be calculated on your final account balance, including any growth. So, assuming identical returns, both will deliver the same amount towards your first home.

But the difference becomes much more interesting when we look beyond buying your first property.

One ISA. Two big life goals.

Here's something that could make a Lifetime ISA particularly valuable: you don't necessarily have to choose between saving for your first home and saving for retirement.

You can do both.

Imagine you start saving £200 a month at age 25.

By 30, you've contributed £12,000 towards your first home and received £3,000 in government bonuses, before any investment growth. You use these savings towards your deposit.

You've bought your first home. But you haven't finished benefiting from your Lifetime ISA.

You could keep the account open and continue saving towards retirement, receiving another 25% government bonus on eligible contributions until you turn 50.

If you continued saving £200 a month for another 20 years, you could build up:

• £48,000 of your own contributions
• £12,000 in additional government bonuses
• £60,000 in total, before any investment growth or charges.

And your money could continue growing until you're 60 or beyond, when you can withdraw it without the usual LISA withdrawal charge.

Add everything together and that's £15,000 in government bonuses across your home-buying and retirement savings, simply by saving £200 a month over those 25 years.

The new First Time Buyer ISA won't offer that second opportunity.

Is a Lifetime ISA always the better choice?

Not necessarily.

For example, if you're already 40 or over and haven't opened a LISA, you won't be eligible to start one. The new First Time Buyer ISA won't have that age restriction.

And there are important rules to consider with a LISA. You must wait at least 12 months after your first payment before using it towards a qualifying first home.

There are also withdrawal charges to be aware of:

• Buying your first home for £450,000 or less? There's no withdrawal charge, provided you meet the qualifying conditions. Your provider may, however, charge an exit fee, including potential early exit penalties.
• Buying your first home for more than £450,000? Following a change announced in the October 2026 Budget, the withdrawal charge is now 20%. This effectively removes the government bonus rather than taking a slice of your original savings, assuming no investment growth.
• Withdrawing for another reason before age 60? A 25% withdrawal charge normally applies. This takes back the government bonus and some of your own savings, so you could receive less than you originally paid in.

Withdrawals from age 60, or in cases of terminal illness, are normally charge-free.

As with any investment, returns aren't guaranteed and the value of your savings could fall.

So, think carefully about when you might need the money and what you want it to achieve.

Why waiting could mean missing out

The new First Time Buyer ISA won't be available until April 2029. If you're hoping to buy before then, it won't be an option.

But even if buying a home is several years away, there's a good reason to consider a Lifetime ISA now.

Opening one before the rules change could preserve your opportunity to receive government bonuses towards both your first home and retirement.

You don't have to know exactly when you'll buy, or what your retirement plans will look like, to start thinking about the future.

And because you need to have had a LISA for at least 12 months before using it towards a qualifying first home, starting sooner could also put you in a better position when the right property comes along.

Ready to make a start?

At Police Friendly and Metfriendly, we can help you understand how a Lifetime ISA works, the potential benefits, the risks and whether it could be right for you.

Important information: The figures shown are illustrative and do not account for fees, inflation, tax changes or variations in investment performance. Government bonuses and ISA rules are subject to eligibility criteria and may change. Investments can go down as well as up, and you could get back less than you invest.