LISA vs Help to Buy ISA: Which Is Better for First-Time Buyers?
The LISA is almost always the better choice if you're saving for your first home today. The Help to Buy ISA closed to new applicants in November 2019, but if you already hold one, comparing the two is worth doing — you might switch. Here's how they stack up, with the numbers you need to make the right decision.
Why the Help to Buy ISA Closed (And What It Means for You)
The Help to Buy ISA launched in 2015 offering a 25% government bonus on savings up to £3,000 per year (£1,000 bonus). It was popular because the bonus was paid out at completion on your first property purchase — you could see the cash hit your account on day one.
But the government closed it to new applicants in November 2019. Why? Because the Lifetime ISA (LISA) does the same job and does it better.
If you already hold a Help to Buy ISA, you can continue paying in and claim your bonus when you buy — even though new savers can't open one anymore. Existing holders aren't left behind; they're just locked out of the better deal.
The Lifetime ISA: The Replacement (And Why It's More Generous)
The LISA launched in April 2017 and has been open ever since. It works like this:
The deal: Save up to £4,000 per tax year (you, not your partner). The government adds 25% — that's £1,000 in free money. So £4,000 in = £5,000 total. You can do this every tax year until age 40.
Who can use it: First-time buyers under 40. The £1,000 bonus is yours on condition you buy a property between £250,000 and £450,000 (England; different caps in Scotland/Wales). After that, any bonus is paid towards your retirement (you can keep contributing until 50).
Key advantage over Help to Buy ISA: The bonus is paid annually, not just at purchase. You get the 25% boost every single year, compounding alongside your savings. Your money starts growing faster, and the government's contribution grows too. Over a multi-year saving period, that compounds into real money.
Head-to-Head: LISA vs Help to Buy ISA
Let's compare them with real numbers. Imagine you're saving for 3 years before you buy:
| Factor | LISA | Help to Buy ISA |
|---|---|---|
| Max contribution/year | £4,000 | £3,000 |
| Government bonus/year | £1,000 (25%) | £750 (25%) |
| Bonus timing | Paid annually | Paid at purchase |
| Max bonus by 3-year purchase | £3,000 | £2,250 |
| Tax-free growth | Yes | Yes |
| Interest rates | Variable (cash) or fund growth (stocks) | Cash only |
| Minimum property price | None | £250,000 |
| Maximum property price | £450,000 | £250,000 |
| Age limit | Under 40 | Under 40 |
| ISA allowance (total) | £20,000/year | £20,000/year |
| Opened to new applicants | Yes | No (closed Nov 2019) |
The LISA wins in three ways:
1. Higher annual bonus: £1,000 vs £750 per year. Over 5 years, that's £5,000 vs £3,750 — a £1,250 difference before interest even arrives.
2. Better compounding: Because LISA bonuses arrive each year, they earn interest alongside your contributions. Help to Buy ISA bonuses only arrive at purchase, so they don't compound. That extra three years of growth matters.
3. Lower minimum property price: LISA works from any price up to £450,000. Help to Buy ISA required a £250,000 minimum — a real barrier for first-time buyers in cheaper markets.
Should You Switch From Help to Buy ISA to LISA?
If you already have a Help to Buy ISA, your switching decision depends on timing:
If you're buying within the next year: Stick with the Help to Buy ISA. You're close to claiming your bonus, and switching would reset your timeline and cause admin friction for a marginal gain.
If you're saving for 2+ more years: Run the numbers. If you can afford to contribute £4,000/year instead of £3,000, the LISA bonus starts pulling ahead. By year 3, you'll likely be better off. The higher annual bonus compounds, and you're not losing any existing bonus — you still claim it.
The mechanics: You can't hold both at the same time. If you open a LISA, your Help to Buy ISA is frozen — no new contributions. You can then use the LISA bonus towards the same purchase. Your ISA provider (usually your bank) handles the process. Check with them about migration.
Our first-time buyer guide covers the full rules for opening a LISA, and comparing accounts comes down to understanding how tax-free wrappers work — see ISA vs savings account to see why that matters.
Real-World Scenario: The First-Time Buyer's Choice
Picture this: You're 28, earning £35,000, with £8,000 already saved in a Help to Buy ISA. You plan to buy in 3 years. Here's what the two paths look like:
Path 1: Stay with Help to Buy ISA
- Your current balance: £8,000
- Bonus already received: £2,000 (assuming 25% on £8,000)
- New contributions: £3,000/year × 3 years = £9,000
- New bonuses: £750/year × 3 years = £2,250
- Total at purchase: £8,000 + £2,000 + £9,000 + £2,250 = £21,250
Path 2: Switch to LISA (starting fresh)
- New contributions: £4,000/year × 3 years = £12,000
- New bonuses: £1,000/year × 3 years = £3,000
- Total at purchase: £12,000 + £3,000 = £15,000
In this scenario, sticking with Help to Buy ISA wins — but only because you've already claimed £2,000 in bonus. If you're starting fresh with no Help to Buy ISA, the LISA is the clear choice. You'd hit £15,000 in 3 years, then have another £3,000 to play with against that £450,000 price cap.
For detailed affordability checks, see if your bank's tools or our related cash ISA vs stocks and shares ISA guide help you decide whether to take on cash deposits or growth-focused funds within your LISA.
The Tax Efficiency Question: Why ISAs Matter
Both LISA and Help to Buy ISA are tax-free. That means:
- Interest you earn is not taxable.
- Fund growth (if you choose stocks) is not taxable.
- The government bonus is not taxable income.
For most savers, this isn't a huge deal — your interest at current rates might only be a few pounds per year. But the structure matters: instead of paying tax on interest earned outside an ISA, you pay £0. Your money compounds untouched.
This is why ISA vs savings account is a question worth asking, and why the ISA allowance (£20,000/year total across all ISAs) is a ceiling you should try to use. You get one tax-free ISA allowance per year — use it on the accounts with the highest growth first.
Frequently Asked Questions
Can I have a LISA and a Help to Buy ISA at the same time? No. You can only hold one Lifetime ISA at a time. If you already have a Help to Buy ISA and open a LISA, your Help to Buy ISA will be frozen (no new contributions). You can still claim the bonus on it when you buy, but new money goes into the LISA.
What if I don't buy a property? Do I lose the LISA bonus? If you don't use your LISA for a first home by age 40, withdrawals after 40 incur a 25% penalty on the bonus and growth. So a £5,000 bonus withdrawal would cost you £1,250 in penalties. The alternative: keep it open and let it become a retirement pot, which is allowed and has no penalties.
Can I use my LISA bonus if I'm buying above £450,000? No. LISA bonuses only apply to properties between £250,000 and £450,000 in England. (Scotland and Wales have different caps — check gov.uk/lifetime-isa for your country.) If you're buying above those limits, you can't use the LISA towards the purchase, though you can keep the account for retirement savings.
How much can I contribute to my LISA each year? Up to £4,000 per tax year (6 April – 5 April). The government adds 25%, so the max bonus is £1,000 per year. You can contribute weekly, monthly, or as a lump sum — it doesn't matter as long as the total for the tax year stays at or below £4,000.
Does the LISA bonus count towards my ISA allowance? No. Your ISA allowance is £20,000 per tax year total across all individual savings accounts. The government bonus sits on top of that and doesn't count against your limit. So you can have a £4,000 LISA + another £16,000 in other ISAs (cash, stocks, innovative finance) in the same year.
What interest rate will I get? That depends on the provider. Different banks offer different rates on LISA cash accounts. Some LISAs also come in stocks-and-shares versions with fund growth. Rates change monthly, so compare current offers at your bank or on the Money Helper website before opening.
If I'm buying with my partner, can they also open a LISA? Yes. Each of you can open your own LISA and contribute up to £4,000 per year. That's £8,000 combined + £2,000 in bonuses per year. The property limit applies to the purchase (£250k–£450k), but both of you can use both bonuses towards it.
What's the time limit for using my LISA bonus? Your bonus must be used before age 40 for a first home purchase, or it becomes part of your retirement savings (no penalty after 40, but you can't withdraw the bonus specifically for property). The property must be your first home, and you must be a UK resident when you complete the purchase.
Next Steps
- Check your Help to Buy ISA: If you have one, call your bank and ask your current balance and total bonus received.
- Run the LISA numbers: If you're starting fresh or considering a switch, calculate 3 or 5 years of £4,000 contributions + 25% bonus and compare it to where you'd be with Help to Buy ISA.
- Pick your provider: Different banks offer different rates and fund options. Check gov.uk/lifetime-isa for the full provider list.
- Set up a regular contribution: £333/month into your LISA gets you to £4,000/year and the full £1,000 bonus.
For related first-time buyer decisions, explore whether you should prioritise tax-free accounts — cash ISA vs stocks and shares ISA shows how risk appetite shapes your returns, and our first-time buyer guide covers the full journey from deposit to completion.