The new Isa rules melt my brain: but that’s not even the worst thing about these changes for first-time buyers | Jason Okundaye
I need to talk about money. Specifically my finances and trying to buy a house as a young person. I hope you’ll forgive me if I sound like I don’t know what I’m talking about, but that’s because I’m going to try to make sense of the government’s reforms to personal savings accounts, known as Isas.
These products have become significantly overcomplicated in recent years, with the government continually refreshing what were conceived of as simple tax-free savings accounts with new rules, allowances, products and age restrictions. I’m not alone in feeling overwhelmed and frustrated. As the deputy money editor of the i newspaper, Callum Mason, put it: “It’s hard enough to understand if you cover money for a living – I don’t know how the general public is supposed to do so.”
So, for dummies (me), an Isa is a savings and investment account that allows you to save up to £20,000 each financial year without paying income or capital gains tax on the interest added. One of them is called the lifetime Isa (Lisa): it’s designed for first-time house buyers or retirement savers and is only available to those under the age of 40. This will now be replaced by a first-time buyer (FTB) Isa by around April 2028.
The new Isa, which is only for buying a house rather than retirement, looks set to have no upper age limit. If you have an existing Lisa you can continue to use that for its original purpose, but you can’t transfer the funds from there into the new FTB Isa. But, err, you can transfer from the old product, the help-to-buy Isa (remember that?), into the new one. Hello, are you still with me?
This and other reforms have supposedly been made to remove the complexity of existing Isa products, as well as to boost the UK economy and protect personal wealth. Instead they have made keeping up with personal finance feel more like cramming for an economics exam. But more than the opacity, the Lisa reforms specifically betray something else: the government still doesn’t seem to understand the world that first-time buyers are living in.
Along with about 2 million other adults in the UK, I hold a Lisa. It seemed straightforward enough when I signed up in 2023. You put in up to £4,000 each financial year and the government tops it up by 25%. But rather than a generous, no-brainer investment product, the Lisa has increasingly looked like a financial trap. That is largely due to its £450,000 cap, in which you face a 25% penalty if you buy a property over £450,000 (or withdraw the money for any reason other than buying a home or retirement). If you do this you lose both the government bonus and 6.25% of your own original savings. Why? Because the 25% penalty applies to the whole amount in your Lisa: so if you had £5,000, including the £1,000 bonus, a 25% penalty means you lose £1,250 – £250 of which is the money you added yourself.
MPs warned last year that many Lisa savers were leaving with less money than they put in. Clearly this is a product that needed radical overhaul. That the threshold has remained at £450,000 since the launch of the product in 2017, despite the wild inflation in house prices, particularly in London and the south-east of England, is also preposterous.
So how does the new Isa address these concerns? Under the current proposals you will still get the government’s 25% top up, except it will only be paid when a property is bought, rather than yearly. There also won’t be a 25% penalty for withdrawing the cash for something else. On the face of it, this seems like a sound resolution, but instead it causes more issues and comes with caveats. The Moneybox personal finance director, Brian Byrnes, has described what we know of the FTB Isa so far to be “more complex, more restrictive and potentially less valuable than the Lisa”.
With the Lisa, you earned compounded interest on what you contributed as well as the yearly 25% top up. Since this is no longer a yearly bonus, you lose the interest you could have earned on top of it. And what of the £450,000 cap? That’s yet to be addressed, but the forecast for a significant increase, or abolition of the cap, doesn’t look promising, with the Treasury seemingly committed to it because it supposedly “ensures that the support goes to people who need it most”.
This isn’t a reflection of reality for young people navigating the housing market. A lot of the people who “need it most” are increasingly skipping their “starter homes” – the kind that would be less than £450,000. For a long time, the pattern of how to get on to the property ladder had been relatively stable and predictable: buy a small flat, build equity, and then move on to a larger property. But young adults are increasingly delaying the age of purchasing their first property. If you don’t have the bank of mum and dad enabling you to buy a flat young, it’s more likely that the first property you do buy will be more expensive and suit longer term needs than simply “getting on the housing ladder”.
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Then there is the question: what to do with my own Lisa? Continue to save into it, knowing that the funds can’t be moved anyway? Cut my losses and invest in the new product, whatever the details of that will be? You’d be forgiven for looking at all this and giving up entirely.
And that’s the problem: while we’re told that these are financial products to support us as young and prospective buyers, what’s being presented seems to only further frustrate the prospects of home ownership. Designing new financial products in response to the housing crisis feels like buying a bigger bucket without fixing the leak in the roof. Each new bucket seems to have holes, just of different sizes and in different places. Alas, there’s still water everywhere.
Jason Okundaye is a Guardian Opinion assistant editor
Read the full story at The Guardian ↗
The government is reforming personal savings accounts (Isas) designed to help first-time homebuyers. The Lifetime Isa, launched in 2017, will be replaced by a First-Time Buyer Isa around April 2028. The Lisa offered a 25% annual government bonus on up to £4,000 per year but penalised withdrawals for non-property purchases. The new product changes the bonus structure to a one-time payment at purchase rather than annual contributions, removes withdrawal penalties, but eliminates the compound interest previously earned on the bonus. The £450,000 property price cap, unchanged since 2017, is expected to remain. These reforms complicate existing Isa products rather than simplify them, and may not address the underlying challenge first-time buyers face: house prices have risen significantly, particularly in London and the southeast, making initial property purchases more expensive than the traditional "starter home" model.
Read the full story at The Guardian ↗
I need to talk about money. Specifically my finances and trying to buy a house as a young person. I hope you’ll forgive me if I sound like I don’t know what I’m talking about, but that’s because I’m going to try to make sense of the government’s reforms to personal savings accounts, known as Isas.
These products have become significantly overcomplicated in recent years, with the government continually refreshing what were conceived of as simple tax-free savings accounts with new rules, allowances, products and age restrictions. I’m not alone in feeling overwhelmed and frustrated. As the deputy money editor of the i newspaper, Callum Mason, put it: “It’s hard enough to understand if you cover money for a living – I don’t know how the general public is supposed to do so.”
So, for dummies (me), an Isa is a savings and investment account that allows you to save up to £20,000 each financial year without paying income or capital gains tax on the interest added. One of them is called the lifetime Isa (Lisa): it’s designed for first-time house buyers or retirement savers and is only available to those under the age of 40. This will now be replaced by a first-time buyer (FTB) Isa by around April 2028.
The new Isa, which is only for buying a house rather than retirement, looks set to have no upper age limit. If you have an existing Lisa you can continue to use that for its original purpose, but you can’t transfer the funds from there into the new FTB Isa. But, err, you can transfer from the old product, the help-to-buy Isa (remember that?), into the new one. Hello, are you still with me?
This and other reforms have supposedly been made to remove the complexity of existing Isa products, as well as to boost the UK economy and protect personal wealth. Instead they have made keeping up with personal finance feel more like cramming for an economics exam. But more than the opacity, the Lisa reforms specifically betray something else: the government still doesn’t seem to understand the world that first-time buyers are living in.
Along with about 2 million other adults in the UK, I hold a Lisa. It seemed straightforward enough when I signed up in 2023. You put in up to £4,000 each financial year and the government tops it up by 25%. But rather than a generous, no-brainer investment product, the Lisa has increasingly looked like a financial trap. That is largely due to its £450,000 cap, in which you face a 25% penalty if you buy a property over £450,000 (or withdraw the money for any reason other than buying a home or retirement). If you do this you lose both the government bonus and 6.25% of your own original savings. Why? Because the 25% penalty applies to the whole amount in your Lisa: so if you had £5,000, including the £1,000 bonus, a 25% penalty means you lose £1,250 – £250 of which is the money you added yourself.
MPs warned last year that many Lisa savers were leaving with less money than they put in. Clearly this is a product that needed radical overhaul. That the threshold has remained at £450,000 since the launch of the product in 2017, despite the wild inflation in house prices, particularly in London and the south-east of England, is also preposterous.
So how does the new Isa address these concerns? Under the current proposals you will still get the government’s 25% top up, except it will only be paid when a property is bought, rather than yearly. There also won’t be a 25% penalty for withdrawing the cash for something else. On the face of it, this seems like a sound resolution, but instead it causes more issues and comes with caveats. The Moneybox personal finance director, Brian Byrnes, has described what we know of the FTB Isa so far to be “more complex, more restrictive and potentially less valuable than the Lisa”.
With the Lisa, you earned compounded interest on what you contributed as well as the yearly 25% top up. Since this is no longer a yearly bonus, you lose the interest you could have earned on top of it. And what of the £450,000 cap? That’s yet to be addressed, but the forecast for a significant increase, or abolition of the cap, doesn’t look promising, with the Treasury seemingly committed to it because it supposedly “ensures that the support goes to people who need it most”.
This isn’t a reflection of reality for young people navigating the housing market. A lot of the people who “need it most” are increasingly skipping their “starter homes” – the kind that would be less than £450,000. For a long time, the pattern of how to get on to the property ladder had been relatively stable and predictable: buy a small flat, build equity, and then move on to a larger property. But young adults are increasingly delaying the age of purchasing their first property. If you don’t have the bank of mum and dad enabling you to buy a flat young, it’s more likely that the first property you do buy will be more expensive and suit longer term needs than simply “getting on the housing ladder”.
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Then there is the question: what to do with my own Lisa? Continue to save into it, knowing that the funds can’t be moved anyway? Cut my losses and invest in the new product, whatever the details of that will be? You’d be forgiven for looking at all this and giving up entirely.
And that’s the problem: while we’re told that these are financial products to support us as young and prospective buyers, what’s being presented seems to only further frustrate the prospects of home ownership. Designing new financial products in response to the housing crisis feels like buying a bigger bucket without fixing the leak in the roof. Each new bucket seems to have holes, just of different sizes and in different places. Alas, there’s still water everywhere.
Jason Okundaye is a Guardian Opinion assistant editor
Read the full story at The Guardian ↗
The government is replacing the Lifetime Isa with a First-Time Buyer Isa by around April 2028 The Lisa was launched in 2017 Lisa users could contribute up to £4,000 annually and receive a 25% government top-up The Lisa has a £450,000 property price cap with a 25% withdrawal penalty Current proposals for the FTB Isa change the 25% bonus from annual to a one-time payment at purchase The new Isa will remove the 25% withdrawal penalty Lisa funds cannot be transferred to the FTB Isa, but Help-to-Buy Isa funds can be MPs warned last year that many Lisa savers were leaving with less money than they put in The £450,000 cap is preposterous given house price inflation since 2017 These reforms have made keeping up with personal finance feel more like cramming for an economics exam The new Isa is more complex, more restrictive and potentially less valuable than the Lisa Losing compound interest on the bonus means the new product is less valuable overall Young adults increasingly skip starter homes and buy more expensive first properties suited to long-term needs Designing new financial products without addressing the underlying housing crisis is like buying a bigger bucket without fixing the leak
Read the full story at The Guardian ↗
- The UK government is replacing the Lifetime Isa (Lisa) with a First-Time Buyer Isa by April 2028, removing the retirement option and age upper limit
- The new Isa changes the 25% government bonus from annual to a one-time payment at purchase, eliminating compound interest on the bonus
- The £450,000 property price cap from the Lisa remains unaddressed in the new product despite significant house price inflation since 2017
- Lisa withdrawals currently incur a 25% penalty on total savings; the new Isa removes this penalty but reduces overall financial benefit through lost compound interest