New First Time Buyer ISA to replace LISA

eskbanker

As promised in last year's Budget, a consultation has been launched to discuss a new product for first time buyers, to replace the Lifetime ISA.

Initial impressions are that it's broadly similar to the Help To Buy ISA, in terms of the bonus being added at property purchase time, and therefore no withdrawal penalties before that, but one key issue is that it won't be permitted to transfer existing LISAs into the new product (as they've already had the bonus added) - it will be possible to use both a LISA and a FTB ISA towards a property purchase but one of the main criticisms of the existing LISA is the property value cap, which will presumably continue to apply to any use of LISAs.

https://assets.publishing.service.gov.uk/media/6a33c4586422bec01b117765/FTB_ISA_Condoc.pdf

However, the purpose is to work through the detailed design, so plenty of questions remain, one of which is the property value cap, where it's signalled (in 3.4) that any increase would come at a cost, that would need to be funded from elsewhere within the product. However, the design features table in chapter 6 suggests that there'll be alignment of the cap between the three first time buyer products ("To be confirmed at a future fiscal event. The cap will match that of the LISA and HtB ISA when announced.").

Responses sought by 17 August…

Rich2808

One big change from the lifetime ISA (see para 2.1) is that the new First Time Buyer ISA (FTB ISA) will help first time buyers of all ages - so won't just be restricted to under 40s (on opening). There was no age restriction on the help to buy ISA.

I can imagine the government is getting increasingly concerned about people now renting privately in their 40s and 50s - and how they will pay their rent in retirement (i.e. leading to the government having to pay them housing benefit). So they want to help them buy too - and so do the rest of us taxpayers looking longer term!

First time buyer isn't defined though i.e. are people who perhaps inherited a share of house when a grandparent/aunt/uncle died but weren't able to ever live in it as the property had to be sold and the proceeds split multiple ways eligible (they aren't currently for the HTB/Lifetime ISA)? Is it a scheme for FIRST TIME BUYERS or FIRST TIME (part or full) OWNERS even if the 'ownership' was via a small inheritance?

The property price cap is also not stated i.e. TBC - unlike the lifetime ISA where it is £450k nationwide or the HTB ISA which is £450k in London and £250k elsewhere.

eskbanker

First time buyer isn't defined though i.e. are people who perhaps inherited a share of house when a grandparent/aunt/uncle died but weren't able to ever live in it as the property had to be sold and the proceeds split multiple ways eligible (they aren't currently for the HTB/Lifetime ISA)? Is it a scheme for FIRST TIME BUYERS or FIRST TIME (part or full) OWNERS even if the 'ownership' was via a small inheritance?

Section 3.1 states the target group as "UK residents looking to purchase their first home" but without expansion - given the sharing of definition between HTB ISA and LISA I'd be surprised if there was any concession offered to those who'd inherited, rather than bought, other properties, and I'd expect the detailed definition to be the current one. They're certainly not asking any questions about whether to extend the eligibility, so IMHO it would seem unlikely that this is on the agenda.

The property price cap is also not stated i.e. TBC - unlike the lifetime ISA where it is £450k nationwide or the HTB ISA which is £450k in London and £250k elsewhere.

Yes, although as mentioned in OP, the suggestion is that value caps will be aligned across the products.

Rich2808

https://forums.moneysavingexpert.com/discussion/comment/82045159#Comment_82045159

Yes - it is just the loose wording that irritates.

People looking to purchase their first home - that to any layperson means anyone who has never purchased a home to actually live in before! Purchasing is different from inheriting - and 'their home' surely means the place they actually live in. It is different to first time owners!

There is quite a big difference between someone inheriting half a £2m house in Surrey - and someone whose grandmother left a £100k house in Blackpool split between 20 grandkids!! Both are ineligible - but the latter might not have got far on £5k in terms of buying!

The equivalent first time buyer schemes in Ireland - which are delivered via tax rebates - include all people who have never purchased a home. Cos that is what first time buyer actually means!!

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82045166#Comment_82045166

It'll no doubt be clarified later in the process but at this stage they're still focusing on boulders rather than pebbles!

Rich2808

https://forums.moneysavingexpert.com/discussion/comment/82045173#Comment_82045173

Quite a key pebble though - as they have to establish who is eligible to open one of these ISAs and who is not! It does trip a lot of people up - an aunt leaves you £1m in cash then you are eligible for the ISA but if she leaves you a £10k share in a property sorry you aren't an FTB anymore?

We will wait and see!

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/82045181#Comment_82045181

Not sure it's particularly key to be honest - there was an extensive review of LISA carried out by the Treasury Select Committee last year, which may ultimately have prompted this initiative, and I don't recall the buyer v owner issue being mentioned at all, so the current consultation is presumably addressing the points that people have been raising rather than anticipating others that haven't had much of a profile.

Obviously there will need to be significantly more detail when the actual final rules are published but, as above, it would surprise me greatly if the eligibility criteria were to be widened in that area (although moving away from the age cap does increase eligibility) and I'd expect the silence on the owner v buyer point to signify that the definition will be retained from the existing products.

Rich2808

Don't disagree - but from my perspective the key focus for government should be on increasing home ownership - and ensuring as few people as possible enter retirement while living in the private rented sector. Because we will all be paying for their housing post 67! In some senses helping over 40s still renting is arguably more critical for our public finances than 25 years olds!

But perhaps I am more focused on long time financial impacts for the public purse - and not getting votes short term!

masonic

You can make policy decisions that make residential property a rapidly inflating scarce resource, or make it an affordable plentiful resource, but you can't achieve both. These schemes that help FTB to pay more for their first home are not addressing the core issue, and I'd much rather see efforts focused on balancing supply and demand.

eskbanker

the key focus for government should be on increasing home ownership - and ensuring as few people as possible enter retirement while living in the private rented sector. Because we will all be paying for their housing post 67!

That's a bit of a leap isn't it - I imagine that some who'd claim housing benefit from 67 might be in a position to buy before that with the help of a government incentive, but would doubt that extending the scope of that to include those who've owned but not bought before would make much impression on that macro picture?

The tone of the LISA report from the select committee reflected concern that there are already far too many getting the bonus who don't really need it and so the direction of travel seemed to be about how to reduce the £600m annual bill rather than increasing it. However, this was in terms of a crude 'means testing' assessment involving incomes, etc, and it was recognised that more accurate targeting is (a) desirable but (b) difficult!

PennysIntoPounds

Do you know if this will also affect LISAs held with the intention of it being kept until 50?