LISAs explained: everything a first-time buyer needs to know

Saving for a deposit is one of homeownership’s biggest challenges but did you know the Government is giving away free money to first-time buyers? You’ll have to open a LISA to benefit: here’s everything you need to know.

What is a LISA?

A LISA – or to give it its full title a lifetime individual savings account - is a specific type of ISA. Unlike other ISAs, the LISA carries an incentive to save. For every £1 a saver deposits into the account, the Government will add an extra 25p. In practice, someone putting in £1,000 in one year will see the balance as £1,250 as the Government will top up the amount by £250.

Who is the LISA aimed at?

The money saved in a LISAs should only be used for two defined reasons – to purchase a first home or to fund a retirement. As such, this makes LISAs popular with younger people who want a simple way to save for two of life’s most expensive milestones. If two first-time buyers are purchasing a property together, they can combine their LISA deposit amounts if they both meet the ‘Buying your first home’ criteria.

Does a LISA have any restrictions?

A LISA has a fairly comprehensive list of restrictions, which include:

• A LISA can only be opened by someone in the age range of 18 to 39 years old

• No more than £4,000 can be paid into a LISA every tax year, with a maximum Government top up of £1,000 per annum

• The first deposit into a LISA must be made before the holder turns 40

• Payments can only be paid until the LISA holders turns 50

• LISA savings counts towards a savers’ £20,000 ISA tax free allowance 

• When buying a property using LISA savings, the home must be worth £450,000 or less

• The property bought must be funded by a traditional mortgage

• The property must be bought at least 12 months after the first savings deposit is made

• The purchase must be overseen by a conveyancer or solicitor who will receive the LISA funds directly

• The LISA holder must be 60 or older to withdraw funds for retirement

Can I withdraw money from a LISA?

It is possible to withdraw all or part of the money saved in an ISA for reasons other than to buy a first home or to retire but there is a financial penalty. The LISA holder will pay a 25% ‘unauthorised withdrawal’ charge on the amount they take out. This 25% charge also applies if the LISA holders transfers the savings to a different type of ISA before they are 60. 

Will LISAs still exist in 2026?

Probably not. The big Autumn Budget headline concentrated on reallocating how a person’s £20,000 tax free allowance can be used (the cash ISA allowance will reduce to £12,000 for under 65s, with the rest to be invested in a stocks and shares ISA). This means you may have missed the small print about the LISA.

Although there are no immediate changes and you can still open an LISA with the conditions and benefits outlined above, the Government has opened a consultation on introducing a replacement product.

The current LISA product will be scrapped and something simpler and fairer introduced for first-time buyers. Critics have been especially vocal about the 25% unauthorised withdrawal fee, which has punished savers who have needed their LISA savings during financial hardship. 

There has also been growing concern that the upper purchase price limit of £450,000 is not workable in London and the South East, where even modest starter homes often exceed this value. It is hoped a new ISA product will carry fewer penalties and restrictions.

If you are a first-time buyer saving for a deposit and would like advice and guidance, please contact us. As well as having some amazing connections in mortgages and finance, we can help you maximise any money saved in a LISA by matching you with a budget-conscious home.