First-time consumers may see £450K home restrict raised amid Budget adjustments
There had been speculation that major changes could be made to the Lifetime ISA
Brits using a specific savings pot to fund their first house purchase may no longer be limited to a £450,000 budget. As part of the Autumn Budget announced today, the Labour Government confirmed a Lifetime ISA reform.
Also known as the LISA, the Lifetime ISA permits people aged between 18 and 39 to save for a first-time home worth no more than £450,000. You can contribute up to £4,000 annually until you reach 50, and the Government will add an extra 25 per cent on top of everything you pay in.
If you withdraw your funds before you turn 60 for any reason other than purchasing a first home, you’ll be hit with a 25 per cent Government penalty – which could leave you with less than you’ve put in. However, some opt to take the money at 60 to assist with retirement.
While the LISA was not mentioned in today’s Budget speech, a report published on GOV.UK highlighted “Lifetime ISA reform”. It said: “The Government will publish a consultation in early 2026 on the implementation of a new, simpler ISA product to support first time buyers to buy a home. Once available, this new product will be offered in place of the Lifetime ISA.”
However, during her announcement, Chancellor Rachel Reeves did confirm the cash ISA limit will drop from £20,000 to £12,000. It is important to note that this is not the full ISA limit – it’s just the cash ISA limit.
This means you will still be able to utilise the additional £8,000 of your annual allowance in different tax-free products. As an example, you could therefore save £12,000 in a cash ISA, £4,000 in a Lifetime ISA and £4,000 in a stocks and shares investing ISA.
Concerns over the LISA threshold
Money expert Martin Lewis welcomed the potential changes. Speaking on social media platform X, he said: “Consultation on replacing the Lifetime ISA with a new first time buyers product will take place in early 2026 (so probably take longer for it to be launched.)
“And I have been promised by a very senior member of the government, that this will include looking at increasing the £450,000 threshold of the existing LISA as the people who have those, cannot be left with a dead product. I will also be lobbying that if the new product is better people should be able to transfer all their LISA (and Help To Buy) money into it.”
Prior to today, speculations had been made that changes might be made to the LISA threshold that means it can only be used to buy homes worth no more than £450,000. Earlier this year, a select committee had brought up the fact that the threshold has not been increased since 2017, even though house prices have gone up.
In a recent episode of his podcast, Martin talked about two potential options:
- Scrapping the penalty for buying a house over £450,000 meaning you would not get your bonus, but you would get your money back
- Increasing the threshold to £500,000 £550,000 or £600,000
Martin said: “Either the Chancellor will follow my recommendation, which I would like her to, which is if you buy a proper house over £450K, then the penalty for withdrawing your money that you normally pay when not buying a qualifying property (would go). You would not get your bonus, but you would get your money back. That is my suggestion.
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“The alternative is that she wants the threshold up. Now I think there is more of a chance of that, maybe going up to £500,000 £550,000 or £600,000 – I think there is more of a chance of that because it is simpler, you can do that at the stroke of a pen. Changing the penalties is slightly more technical. You never know, we could get both.”
It is important to note that you can only withdraw money from your ISA if you’re:
- Buying your first home
- Aged 60 or over
- Terminally ill, with less than 12 months to live
If you have a Help to Buy ISA as well as a Lifetime ISA, you can only use the Government bonus from one of them to buy your first home. You can transfer money from a Help to Buy ISA to a Lifetime ISA.
For more information on Lifetime ISAs, visit the Goverment website here.
