Lifetime ISA update

There’s been recent government statements about the future of Lifetime ISAs, which has led to some understandable confusion. Here are the key points explained:

Nothing has changed for Lifetime ISA customers right now.

The latest update is a clarification about future reform, mainly aimed at first-time buyers, rather than any immediate rule change.

No changes right now

All existing Lifetime ISA rules remain the same today:

• You can still open a Lifetime ISA if you’re eligible.
• If you already have one, you can keep contributing under the current rules.
• There is no sudden cut-off, no rush, and no requirement to take action.
• For those using a Lifetime ISA for later life savings, there are currently no proposed changes to how Lifetime ISAs work.

Government guidance confirms that Lifetime ISAs will remain available until a Lifetime ISA replacement or alternative product is introduced, and that existing holders can continue saving under the current rules.

A new first-time buyer product is on the way

The government has outlined plans in its autumn budget to consult on a new, simpler savings product designed exclusively for first-time buyers, expected to launch around April 2028, following consultation and legislation.

Under the current proposal, the government bonus would be paid as a lump sum when you purchase your first home, rather than being added after each contribution. This means interest would only accrue on your own savings, not on the bonus amount. However, the government has indicated that the 25% withdrawal charge would no longer apply under the proposed new product. 

By comparison, under the current Lifetime ISA rules, withdrawing funds for any reason other than buying an eligible first home (priced at £450,000 or less) or accessing the account after age 60 results in a 25% withdrawal charge. The 25% charge applies to the full withdrawal amount, not just the bonus, which means you will get back less than you paid in.

These changes are intended to improve flexibility and support for first-time buyers, but it’s important to note that details are not final and remain subject to consultation and legislation.

What happens next?

For now, this update is reflecting the government’s longer-term plans to support first-time buyers, not immediate reform. We’ll continue to monitor government announcements and share updates as more information becomes available.

For more information about Lifetime ISAs, you can visit our easy-to-follow Lifetime ISA guide, which explains how Lifetime ISAs work. You can also find further details on Unity Mutual’s Lifetime ISA, including our current interest rate, terms and conditions, and how to apply.

If you’d like to speak to our friendly team about opening a Lifetime ISA or have questions about an existing account, you can call us on 0161 214 4650. 

Please note we can’t provide individual guidance. If you’re unsure how these developments might affect your personal situation, you may want to consider speaking to a regulated financial adviser (unbiased.co.uk).