Lifetime ISA for first-time buyers: the £1,000 yearly bonus explained

The Lifetime ISA (LISA) is one of the most valuable savings products available to UK first-time buyers. The government adds a 25% bonus to every pound you save — up to £4,000 per year. That means up to £1,000 in free money annually, just for saving toward your first home. If you're eligible, not using a LISA is leaving money on the table.

You must be between 18 and 39 to open a LISA. You can save up to £4,000 per year and receive a 25% bonus on contributions. The bonus is paid monthly on contributions made. To use the LISA for a property purchase, the property must cost £450,000 or less, your LISA must have been open for at least 12 months before you buy, and you must be a first-time buyer. The government has consulted on replacing the LISA with a new First Time Buyer ISA, but no launch date has been confirmed and you can still open and pay into a LISA.

Save £4,000/year × 5 years = £20,000 of your own contributions. Government bonus: £5,000. Total saved in 5 years: £25,000 — before any investment growth or interest. Add an assumed 5% annual growth on a Stocks and Shares LISA and that £25,000 could be about £28,000–£29,000 before charges (growth isn't guaranteed, and this isn't adjusted for inflation). That's a meaningfully larger deposit made possible entirely by starting a LISA at 25 rather than 30.

A Cash LISA pays interest like a savings account; rates vary between the handful of providers, so compare them before opening one. A Stocks and Shares LISA invests in funds with higher long-term growth potential but short-term volatility. If your timeline to buying is less than 3 years, a Cash LISA is safer — market dips close to your purchase date could reduce your pot. If you have 5+ years, a Stocks and Shares LISA's growth potential typically outweighs the volatility risk.

If you withdraw from a LISA for anything other than a first home purchase or retirement (age 60+), you pay a 25% withdrawal penalty. This claws back the government bonus plus a small portion of your own contributions. Effectively: only open a LISA if you're genuinely saving for a first home or retirement. It's not an emergency fund.

The LISA's annual allowance (£4,000) also resets on April 5. Any of this year's £4,000 you don't use by 5 April is lost, along with the bonus on it. Opening a LISA with even a small deposit also starts the 12-month clock before you can use it for a purchase, so it's worth opening one early even if you're not ready to buy.