Savings & First Homes · 2026/27
Help to Buy ISA vs Lifetime ISA 2026: Which Is Better for First-Time Buyers?
For years the Help to Buy ISA and the Lifetime ISA (LISA) sat side by side as the two government-boosted ways to save a deposit. In 2026 the picture is simpler: the Help to Buy ISA is closed to new savers, leaving the Lifetime ISA as the main first-home account. This guide compares the two, explains the 25% bonus, the £450,000 price cap and the 25% withdrawal penalty, and helps existing Help to Buy ISA holders decide whether to keep or transfer.
The Headline: Help to Buy ISA Is Closed to New Savers
The Help to Buy ISA stopped accepting new applicants on 30 November 2019. If you do not already hold one, you cannot open one - the only government-bonus first-home savings product you can open now is the Lifetime ISA.
If you opened a Help to Buy ISA before the deadline, you keep your rights. You can carry on paying in (up to £200 a month after the initial £1,200 opening deposit) until 30 November 2029, and you must claim your government bonus by 1 December 2030. After those dates the account loses its bonus eligibility.
Because no one can open a new Help to Buy ISA, the practical choice for a first-time buyer starting from scratch in 2026 is the Lifetime ISA - or an ordinary Cash ISA or Stocks and Shares ISA if a LISA does not suit them.
How the Lifetime ISA Works
The Lifetime ISA is designed to help you save for your first home or for retirement. The key features for 2026/27 are:
- You must be aged 18 to 39 to open one.
- You can pay in up to £4,000 per tax year (part of the overall £20,000 ISA allowance).
- The government adds a 25% bonus, up to £1,000 a year.
- You can keep paying in and earning the bonus until the day before you turn 50.
- Funds can be used penalty-free for a first home up to £450,000, or from age 60.
You can choose a Cash LISA (interest-bearing, capital secure) or a Stocks and Shares LISA (invested, with growth potential and risk). For a short savings horizon, cash usually suits; for a longer horizon, investing may grow faster but can fall in value.
Side-by-Side Comparison
| Feature | Help to Buy ISA | Lifetime ISA |
|---|---|---|
| Open to new savers | No (closed 2019) | Yes (age 18 to 39) |
| Government bonus | 25% on up to £12,000 | 25% on up to £4,000 per year |
| Maximum bonus | £3,000 | Up to £33,000 over time |
| Property price cap | £250,000 (£450,000 London) | £450,000 UK-wide |
| When bonus is paid | At completion | Monthly, can fund deposit at exchange |
| Early-exit penalty | None (lose bonus only) | 25% withdrawal charge |
The Lifetime ISA generally wins on price cap and total bonus, but the 25% withdrawal charge makes it less flexible if your plans change before you buy.
Worked Example: Saving £200 a Month
Imagine you save £200 a month (£2,400 a year) for four years into a Lifetime ISA, ignoring interest for simplicity.
- Your contributions: £2,400 x 4 = £9,600
- Government bonus at 25%: £2,400
- Total saved towards your deposit: £12,000
That £2,400 of free money is the heart of the LISA. If instead you maximised the £4,000 annual allowance every year, you would receive the full £1,000 bonus each year - the quickest way to build a deposit with government help in 2026.
The 25% Withdrawal Charge Explained
The biggest risk with a Lifetime ISA is the 25% withdrawal charge. It applies if you take money out for anything other than a qualifying first home, reaching age 60, or terminal illness. Crucially, the charge is applied to the whole withdrawal, including the bonus - so it claws back more than the bonus you received.
Example: You pay in £4,000 and receive a £1,000 bonus, giving £5,000. If you withdraw it early, the 25% charge is £1,250, leaving you with £3,750 - £250 less than you originally paid in. The penalty is a real loss, not just the loss of the bonus.
There is one exception that catches buyers out: if your home costs more than £450,000, you cannot use the LISA penalty-free, even for a genuine first purchase. In high-price areas, that cap can be a problem.
Should Existing Help to Buy ISA Holders Transfer?
If you already hold a Help to Buy ISA, you can transfer the balance into a Lifetime ISA. The advantages are the higher £450,000 price cap and the larger lifetime bonus. The catch is the £4,000 annual LISA limit: a large Help to Buy ISA balance may take more than one tax year to move across, and only £4,000 of transfers per year qualifies for the bonus.
Reasons to keep the Help to Buy ISA instead of transferring:
- You plan to buy within the next 12 months (a new LISA must be open 12 months first).
- Your target home is under £250,000 (the Help to Buy cap is not a problem).
- You want the flexibility of no withdrawal penalty.
For most younger savers buying in higher-price areas, transferring to a Lifetime ISA is the stronger long-term choice - but only if you are confident you will buy a first home or hold until age 60.
Common Mistakes to Avoid
- Buying above £450,000: using a LISA on a more expensive home triggers the 25% charge.
- Opening too late: you must be under 40 to open a LISA, so do not delay.
- Forgetting the 12-month rule: the account must be open at least a year before a first-home withdrawal.
- Using both bonuses: you can only put one government bonus towards a first home.
- Treating a LISA as an emergency fund: early withdrawals cost you more than the bonus.