Understanding the Lifetime ISA for First-Time Buyers

Tuesday 15 July, 2025

Getting a foot on the property ladder with a first-time buyer mortgage remains a significant financial milestone and, for many, a considerable challenge. With house prices continuing to rise and the pressures of the cost of living, saving a deposit, and making the most of tools like the Lifetime ISA, often requires long-term discipline and strategic planning.

To support prospective homeowners, the UK Government introduced the Lifetime ISA (LISA), a savings vehicle designed specifically for those aged between 18 and 39 who are either looking to buy their first property or save for later life. When used correctly, a LISA can provide a meaningful boost to a first-time buyer’s deposit. However, it also comes with a number of conditions and restrictions that must be understood in full before committing.

At Lonsdale Mortgages, we offer professional mortgage and financial advice tailored to first-time buyers, ensuring clients make informed decisions that support their broader financial goals.

What Is a Lifetime ISA?

A Lifetime ISA allows eligible individuals to save up to £4,000 each tax year and receive a Government bonus of 25% on contributions. This equates to a maximum annual bonus of £1,000. The funds can be held either in cash or invested in stocks and shares, and any interest or investment growth generated is free from tax. The account must be opened between the ages of 18 and 39, and contributions can continue until the saver reaches the age of 50.

While Lifetime ISAs can be used to save for retirement, they are also intended to help first-time buyers build a deposit for a residential property. In this context, the ability to access the funds without penalty is subject to specific eligibility criteria. Understanding these in detail is essential before opening the account.

Eligibility Criteria for Using a LISA to Buy a First Home

To use a Lifetime ISA for purchasing a property, the individual must be classified as a first-time buyer, which means they must never have owned a property anywhere in the world, including through inheritance or joint ownership. The property being purchased must have a value of £450,000 or less. This is a nationwide limit and does not vary depending on location or property type.

In addition, the Lifetime ISA must have been open for a minimum of 12 months before the funds can be used towards a property. Withdrawals for this purpose must be made via a solicitor or conveyancer, who will apply to the LISA provider for the funds and confirm that the money will be used for the house purchase. It is also a requirement that the property is being purchased with a mortgage; cash buyers cannot use a LISA to finance the transaction without incurring penalties.

A Long-Term Saving Example: Opening a LISA at 18

To illustrate the potential financial benefit of a LISA, consider an example where an individual named Olivia opens a Cash Lifetime ISA at age 18 and contributes the full annual allowance of £4,000 every tax year.

She continues to do so until she reaches 33, giving her a 15-year saving period.
Her account earns an annual interest rate of 3.5%, compounded each year, and she receives the 25% Government bonus on her contributions throughout.
By the age of 33, Olivia will have contributed a total of £60,000.
The Government bonuses will have added a further £15,000, bringing her total contributions and bonuses to £75,000.
With the addition of compound interest at 3.5% per annum, her LISA balance will be approximately £93,350.

This sum could be used as a significant deposit towards a first home, demonstrating the value of consistent, long-term saving and the importance of starting early.

The Role of Junior ISA Transfers

If Olivia also held a Junior ISA (JISA), she could transfer part or all of those funds into her Lifetime ISA after turning 18. However, she would still be subject to the LISA’s £4,000 annual contribution limit.

If her Junior ISA had a balance of £9,000, for example, she could transfer £4,000 in the first year and, if desired, the remaining £5,000 across subsequent tax years, again subject to annual limits. The transferred amount would be eligible for the 25% Government bonus, making the transfer an attractive option, provided it is well-timed and planned in line with her financial needs and goals.

It is important to note that transferring funds without regard to the annual limit may result in exceeding the allowance, which would lead to penalties and the loss of bonus entitlement. For this reason, any decision to transfer Junior ISA funds into a LISA should be undertaken with professional guidance.

Limitations and Considerations

While the Lifetime ISA offers attractive benefits, it also presents several limitations that must be carefully considered. Early withdrawals for reasons other than a first home purchase, reaching age 60, or terminal illness will incur a 25% charge on the withdrawn amount. This charge effectively reclaims the Government bonus and also results in a small loss of the individual’s own capital.

The annual contribution limit of £4,000 is also part of the individual’s overall £20,000 ISA allowance. This means that contributing the maximum to a LISA will reduce the amount that can be paid into other types of ISAs within the same tax year.

There is also a cap on the value of the property purchased. If the individual intends to buy a home costing more than £450,000, they will not be able to use the LISA without paying the 25% penalty. This can be particularly problematic for buyers in high-cost areas such as London and the Southeast.

Where a couple is purchasing a property together, only the individual who is a first-time buyer with a LISA may use their funds without penalty. If the other person has previously owned a home, their LISA must not be used toward the purchase unless they are prepared to pay the withdrawal penalty.

The Importance of Seeking Professional Advice

Although the Lifetime ISA is a well-intentioned and potentially highly rewarding scheme, the complexity of the rules means it is recommended to seek professional advice before proceeding. Misunderstanding the conditions for withdrawal, exceeding contribution limits, or using the funds inappropriately can lead to unnecessary penalties and a loss of Government bonuses.

At Lonsdale Mortgages, our experienced financial advisers and mortgage brokers are fully authorised by the Financial Conduct Authority (FCA) and are well placed to support first-time buyers in making informed, strategic financial decisions. We work with clients to assess the suitability of the Lifetime ISA within the broader context of their personal goals, financial obligations, and future plans.

How Lonsdale Can Assist First-Time Buyers

Buying a first home is a life-changing event, requiring not only careful planning but a clear understanding of all available financial tools. At Lonsdale Mortgages, we take a measured and professional approach to helping clients build their financial futures. Our mortgage advisers provide bespoke advice, explaining the advantages and limitations of savings products such as the Lifetime ISA in a way that supports long-term decision-making.

Whether you are just beginning to save or already have a Junior ISA to transfer, our team can help you understand the full implications and opportunities available. We are here to ensure your financial journey starts on solid ground. To arrange a consultation with a local Lonsdale adviser, contact us today and take your first step towards home ownership with confidence and clarity.

Amy Kadir, Lonsdale Mortgage Broker, St Albans, Hertfordshire said:

“The Lifetime ISA can be a powerful way to boost your first home deposit, but it’s vital to understand the rules before committing. At Lonsdale, we help clients navigate the finer details to ensure the account supports their long-term financial plans. Every individual’s circumstances are different, and what suits one saver may not be right for another. That’s why we take the time to provide tailored, regulated advice that gives our clients clarity and confidence in their financial decisions.”

Please note: The value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested. The information contained within this article is for guidance only and does not constitute advice which should be sought before taking any action or inaction. The information is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. The Financial Conduct Authority does not regulate tax planning.

As a mortgage is secured against your home, it may be repossessed if you do not keep up the mortgage repayments. This article is for information only and does not constitute advice.

Sources: gov.uk/lifetime-isa, gov.uk/government/publications/lifetime-isa-guidance-notes, moneyhelper.org.uk, .fca.org.uk, bankofengland.co.uk