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Lifetime ISA vs Help to Buy ISA: Which is Better for First-Time Buyers?

  • Writer: Alex Mason - Investing & Financial Growth Writer
    Alex Mason - Investing & Financial Growth Writer
  • Apr 13
  • 5 min read

Buying your first home is a major financial milestone — and two government-backed savings schemes have been designed to help: the Lifetime ISA (LISA) and the Help to Buy ISA.


But which one should you choose? Or can you use both?


In this guide, we explain the key differences, pros and cons, and eligibility criteria for each scheme. Whether you're just starting to save or already have one of these accounts open, this comparison will help you make the most of your government bonus and avoid costly mistakes.


First-time buyer comparing Help to Buy ISA and Lifetime ISA options on a laptop at home

Are Both ISAs Still Available?


Let’s clarify an important point up front.


  • The Help to Buy ISA closed to new applicants on 30 November 2019. If you opened one before then, you can continue saving into it until November 2029 and claim your government bonus until 2030.

  • The Lifetime ISA (LISA) is still open to new applicants and remains an active scheme.


So, if you’re already in a Help to Buy ISA, you can continue using it. If not, your only option for a first-home government bonus now is a Lifetime ISA.


Key Differences Between Lifetime ISA and Help to Buy ISA


Let’s break down the main differences between the two products across key areas:


1. Eligibility


  • Lifetime ISA: Available to those aged 18 to 39

  • Help to Buy ISA: Was available to those aged 16+ before the deadline


2. Government Bonus


  • Lifetime ISA:

    • 25% bonus added monthly

    • Maximum bonus per year: £1,000

    • Bonus applies to savings up to £4,000/year


  • Help to Buy ISA:

    • 25% bonus paid at the time of home purchase

    • Maximum bonus: £3,000

    • Applies to savings up to £12,000


3. Contribution Limits


  • Lifetime ISA:

    • Up to £4,000 per year

    • Part of your annual ISA allowance (£20,000 total limit)


  • Help to Buy ISA:

    • Initial deposit of £1,200

    • Then up to £200/month


4. Property Price Limits


  • Lifetime ISA:

    • Property must cost £450,000 or less

    • Applies nationwide


  • Help to Buy ISA:

    • Property must cost £250,000 or less outside London, £450,000 or less in London


5. When You Can Use the Bonus


  • Lifetime ISA:

    • Must have the account open for 12 months before using it for a house purchase

    • Bonus paid directly to your conveyancer during the buying process


  • Help to Buy ISA:

    • Bonus claimed at completion, not usable toward deposit at exchange

    • Some buyers are caught out by this timing


6. What Happens If You Withdraw Early


  • Lifetime ISA:

    • 25% penalty on any withdrawal that isn't for a first home or after age 60

    • This effectively removes your bonus and some of your own savings


  • Help to Buy ISA:

    • No penalty — you simply don’t get the bonus if the purchase doesn’t go ahead


Which ISA is Better for First-Time Buyers?


If you’re eligible for both (i.e. under 40 and already have a Help to Buy ISA), here's how to choose.


Lifetime ISA Advantages:


  • Higher annual contribution limit

  • Larger total government bonus potential

  • Applies to properties up to £450,000 across the UK

  • Can also be used for retirement savings (age 60+)


Help to Buy ISA Advantages:


  • No withdrawal penalty

  • Can be opened at 16

  • Monthly savings ideal for budgeting

  • Still usable if already opened before 2019


Conclusion: If you haven't opened either, your only option now is the Lifetime ISA — and it offers more flexibility and a higher bonus in most cases.


Can You Have Both a Lifetime ISA and Help to Buy ISA?


Yes — you can hold both accounts if you opened the Help to Buy ISA before the deadline.


However:


  • You can only use one of them for your house purchase

  • Most people choose the Lifetime ISA if buying a home under £450,000, as the bonus is more generous


Tip: You could transfer your Help to Buy ISA savings into a Lifetime ISA to consolidate your savings and boost your bonus — but be mindful of the 12-month rule.



Example Scenario: Sarah’s First Home Decision


Sarah, age 26, lives in Manchester and opened a Help to Buy ISA in 2018. She’s saved £9,000 so far. Her dream flat costs £270,000 — over the £250,000 Help to Buy limit outside London.


If she sticks with the Help to Buy ISA, she won’t be eligible for the bonus.


But if she transfers her savings to a Lifetime ISA, waits 12 months, and continues saving, she can:


  • Claim the 25% bonus

  • Purchase a home up to £450,000

  • Avoid losing her bonus because of price limits


This is a common trap many first-time buyers fall into — and it shows how the Lifetime ISA is often a better fit in today’s market.


Unique Insight: Retirement Flexibility with LISAs


One major benefit often overlooked is that the Lifetime ISA isn’t just for home buying — it can also be used to save for retirement.


  • After age 60, you can withdraw the money tax-free and without penalty

  • There’s no obligation to use it for a house purchase

  • It can complement your pension or serve as an emergency backup in later life


This dual-purpose makes the LISA more versatile than Help to Buy ISAs ever were.



Pros and Cons Summary (Bullet Format)


Lifetime ISA


Pros:

  • Up to £1,000 annual bonus

  • Can be used for retirement

  • Higher property price limit

  • More generous bonus than Help to Buy


Cons:

  • 25% penalty on unqualified withdrawals

  • Must wait 12 months before using

  • Age limit: can’t open after 39


Help to Buy ISA


Pros:

  • Monthly saving structure encourages consistency

  • No penalty for early withdrawals

  • Still usable if you opened one before 2019


Cons:

  • Lower maximum bonus

  • Regional property price caps

  • Bonus not usable at exchange


Frequently Asked Questions (FAQs)


Can I transfer my Help to Buy ISA into a Lifetime ISA?


Yes, you can transfer all or part of your Help to Buy ISA into a LISA, but this counts towards your £4,000 annual LISA limit. You must also wait 12 months before using the LISA for a house purchase.


What happens if I open a Lifetime ISA but don’t buy a house?


You can still use the money tax-free after age 60. If you withdraw it before that for other reasons, you’ll pay a 25% penalty.


Can I use a LISA to buy with someone who has a Help to Buy ISA?


Yes — if you’re buying together, each of you can use your respective ISA bonuses if you’re both first-time buyers, and the property value is within both schemes’ limits.


Is there a minimum time I must hold a Help to Buy ISA?


No minimum holding period, but you must have saved at least £1,600 to qualify for the government bonus.


Can I have both a Cash ISA and a Lifetime ISA?


Yes — as long as your combined contributions don’t exceed the £20,000 annual ISA allowance.


Final Thoughts


If you’re a first-time buyer and under 40, the Lifetime ISA is likely your best option — offering a higher annual bonus, broader property limits, and the added benefit of future retirement savings. While Help to Buy ISAs still work for some, they’re restricted by older rules and limited flexibility.


Make sure to review your current savings plan, understand the rules of each scheme, and act early — especially if you’re nearing the Lifetime ISA age limit or planning to buy soon.



Disclaimer:  Smart With Money may receive compensation through affiliate links, sponsored content, or advertising featured on this site. This does not influence our editorial standards. All reviews and recommendations are based on independent research, and we aim to provide accurate, objective information to help you make informed financial decisions.


Please note:  All content on SmartWithMoney.co.uk is for informational purposes only and does not constitute financial advice. Always seek guidance from a qualified financial adviser before making any financial decisions.

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