Available to those aged 18 or over, there will be no upper age limit, recognising that the age at which a first home is bought is rising.

People saving for their first home through the FTB ISA will be able to save up to a yet-to-be confirmed annual limit, which will count towards their ISA allowance. It can be put towards any home in the UK valued up to a set price cap – that’s expected to remain the same as the current Lifetime ISA (LISA) at £450,000 - and purchased with a legal mortgage. 

First-time buyers will receive the government bonus of 25% at the point they are ready to put that money into a mortgage to buy their first home.

Details of the FTB ISA, which once available will replace the current LISA, were revealed as Westminster launched a consultation on the new ISA. 

The Lifetime ISA is being withdrawn with the government admitting “there is evidence that the product is not working well for many”.

Rebecca William, financial planning divisional lead at Rathbones, said: “While a simpler savings vehicle is a step forward, it doesn’t change the fundamental challenge facing first-time buyers. Younger generations are contending with a double squeeze of high rents and elevated living costs, making it increasingly difficult to build a deposit. As a result, the traditional milestone of homeownership is drifting into the mid-30s for many.”

Rachel Vahey, head of public policy at AJ Bell, believes further details are required before a decision can be made on the merits of the FTB ISA. 

“Today’s consultation gives us the broad shape of the new ‘First Time Buyer ISA,’ but leaves us guessing on some of the most important aspects,” she said. “Without detail on the level of government bonus, subscription limits or property price cap, it is difficult to judge whether this new product will be a meaningful improvement for aspiring homeowners.”

The news came amid ISA reforms, with Rachel Reeves’ parting shot as chancellor to tax them for the first time.

From next April, those holding cash in their stocks and shares ISAs will face a 22% tax charge on the interest received.

In her November budget the chancellor slashed the annual ISA allowance from £20,000 to £12,000 for under-65s from April 2027. The amount that can be put in an investment ISA will remain at £20,000 in each tax year, in a bid to push more savers to invest in the stock market.

However, savers who hold cash in a stocks and shares ISA will have to pay the new tax on any interest they earn. This will affect savers who hold uninvested cash in their account while deciding which stocks to buy or during periods of market volatility.

The chancellor’s new tax charge is designed to stop savers flouting the new £12,000 cash ISA cap by placing all of the remaining £8,000 allowance in cash inside an investment ISA. Under current rules, this money would earn a high level of interest free of tax.