For many aspiring first-time buyers, the biggest barrier to home ownership is not the ambition to buy. Rather, it is the ability to save a large enough deposit whilst bills and house prices stretch budgets. That is why targeted support matters. 

UK Finance recently published its response to His Majesty Treasury’s consultation on the proposed First Time Buyer (FTB) ISA. We welcome the proposed product. Its purpose is specifically to help people build savings needed to step onto the property ladder. We believe this product being focused solely on supporting first-time buyers represents an important policy shift. It is simpler, more focused, recognises the deposit constraints facing FTBs, and conducive to homeowning ambitions. We are proud to also have advocated further reforms that should improve outcomes for both consumers and ISA providers.

Why a new FTB ISA is needed

In the government’s words, the incumbent Lifetime ISA is not working well for many. Its dual purpose as both FTB and pensions product led to consumer confusion. Furthermore, the withdrawal penalties applied to customers saw both the government bonus and 6.25% of their own savings clawed back. The FTB ISA will resolve these issues by keeping the government bonus separate and dropping the pensions element.

Improvement recommendations

We have made some key recommendations. As it stands, several ‘levers’ of the proposed product need to be reconciled. These include:

• The property price cap
• The government bonus
• Contribution caps

The property price cap: Our position is that a balance must be achieved to help ensure the product remains attractive, accessible and effective for consumers. We strongly recommended the house purchase price cap be set at a minimum of £500,000, and pegged to the House Price Index. This would support the average UK FTB in retaining the bonus received on their ISA and use this towards purchasing their first home, as it accounts for inflation. That approach would mean fewer consumers are ‘priced out’ as they were with previous products.

The government bonus: As the bonus is a primary driver of the product’s appeal, it must provide a meaningful enough consumer incentive. Additionally, penalties to the bonus – when incurred for purchasing over the property price cap – should be progressively tapered downwards. Unauthorised withdrawals from small overpayments would therefore face proportionately small penalties, avoiding a 'cliff edge.' This avoids the total loss of the bonus which had previously been an issue with the LISA.

Contribution caps: We’ve asked for further detail on maximum amounts for annual and lifetime contributions. Government must recognise that multiple caps risks complexity for consumers. If needed, it would be preferable to have an indexed lifetime bonus cap combined with a higher annual subscription limit. This would promote maximum value per customer being balanced for Government, whilst allowing more FTBs to save faster.

Implementation recommendations

On the provider side, we've asked HMT and HMRC for early, detailed technical specifications. Connectedly, we recommended an earliest launch date to be April 2028, subject to specifications of final requirements. This is because the significance of the scale of build required, particularly for members without existing product infrastructure. 

Another key request is for the government to create a verification service which handles eligibility and bonus validation. This would reduce duplicated effort across providers. Finally, we've flagged a resourcing risk around ISA and DISA reforms, asking Government to take care to not overburden industry.  

Conclusion

Our recommendations, if implemented, will support the proposed product will work well for government, industry and consumers. Our feedback should shape the product into helping creditworthy borrowers build deposits needed for their first home.