LISA replacement should not weaken ambition to save for deposit – Bamford

Cutting the cash ISA limit for those under 65, adding new tests, and blocking transfers from investment ISAs to cash ISAs has left many people asking whether the aim is to tidy things up or to make the whole structure infinitely more complicated and ultimately less generous.

Against that backdrop, the Budget line about an impending consultation on a new first-time buyer ISA to replace the Lifetime ISA (LISA) perhaps needs far more scrutiny than we might ordinarily give it.

On the face of it, the LISA is not an overly complex product. You can pay in up to £4,000 each tax year, and the government adds a 25% bonus. If you use the funds to buy your first home, or you wait until you reach 60, you keep the bonus.

If you take the money out early for any other reason, you lose some of that bonus. There are limits and rules, of course, and there has been fair commentary from the likes of Martin Lewis about the penalty structure, but the core idea is clear and has been stable for some time.

So when the Chancellor says she wants a “simpler” first-time buyer specific ISA product in place of the LISA, we have to ask what “simpler” truly means. The obvious concern is that “simpler” is a neat way of saying “cheaper for the Treasury”.

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LISA’s help with deposits is significant

It is not hard to see why some in government might want to reduce the bonus or delay when the bonus is paid. A bonus paid only at the point of purchase rather than each year would save money and would mean the headline rate could stay the same even if the total support fell. It would also give the government more control over the cost of the scheme, as only those who actually buy would get the top-up. That might suit the Treasury, but would it weaken the value of the product for savers?

And that is the real issue here: the LISA has worked because it has offered clear support for deposit saving. First-time buyers know how hard it is to pull together even a 5% deposit, never mind 10%.

This sits at the centre of most mortgage conversations advisers will have had with would-be first-time buyer clients. Lenders have stretched income multiples, and the high-loan-to-value (LTV) market is in decent shape with plenty of 90% and 95% products and a small but firm set of 100% options, yet none of that solves the basic point that deposit saving is still the biggest obstacle for most would-be buyers.

The LISA has been one of the few tools that gives that journey a meaningful boost.

Diminishing first-time buyer faith

Removing that tool without a clear and strong replacement would be troubling, not just for those who already hold LISAs but also for those who will need help over the next few years.

It is no surprise that some savers are already feeling uneasy.

They will read about cuts to cash ISA limits and new rules on transfers and wonder if their own support is next in line. If trust is shaken in one part of the ISA system, will it spill over into others?

Of course, we do not yet know what the replacement will look like. The consultation is due to start in 2026 and that is likely to cover the property price cap, the bonus rate, withdrawal rules, and how the new scheme fits alongside mortgage policy. There is room for useful reform, but there is also room for cuts. If this becomes a way to trim spending under the cover of ‘simplifying’, then the sector should say so early.

There is also a question about whether a state-backed product is even the right path. Banks and building societies offer LISAs. They also supply the mortgages that first-time buyers use. Could we see a combined private ISA product that links deposit saving with a future mortgage deal?

It is possible, but the draw of the government bonus has always been the main reason that savers use LISAs, so any private combined option would have to make up for the lost support. Given margins in high-LTV lending, that may be a struggle.

What matters most is that the new scheme, whatever shape it takes, should not weaken the urge to save a deposit. House prices are not going to drop in a way that changes the deposit hurdle for the better.

I will keep a close eye on the consultation as it develops, but the early signs suggest we need to watch this very carefully – the likelihood right now of a more generous new ISA option for first-time buyers than what they currently have with the LISA seems fanciful.