First-time buyers could gain greater flexibility over their savings and access to smaller deposits under the government’s £4.7bn Your First Home scheme, as changes to Lifetime ISA penalties aim to remove a costly barrier to homeownership.
Chancellor John Healey’s Autumn Budget places aspiring homeowners at the centre of the government’s housing agenda, combining a new equity loan programme with reforms to the Lifetime ISA (LISA) withdrawal charge.
The measures could help buyers struggling to accumulate a deposit, particularly in expensive markets such as London and the South East. But mortgage costs, new-build price premiums and the long-term expense of repaying an equity loan will remain important considerations.
Lifetime ISA penalty cut offers relief to first-time buyers
Research from Mojo Mortgages’ 2026 First-Time Buyer Sentiment Survey highlights the extent to which Lifetime ISA rules have influenced purchasing decisions.
Nearly 70 per cent of first-time buyers who purchased a property in the UK over the past year had held a Lifetime ISA. Meanwhile, 37 per cent of surveyed LISA holders said they deliberately bought a cheaper property, compromising on size or location to avoid the account’s £450,000 property price cap penalty.
Kayleigh Jackson, senior mortgage manager at Mojo Mortgages, welcomed the proposed reduction in the withdrawal penalty from 25 per cent to 20 per cent.
“Lowering the Lifetime ISA withdrawal penalty from 25% to 20% is a long-overdue fix to a system that was actively punishing the very people it was built to help,” she said.
Under the existing rules, the 25 per cent charge applies to the entire withdrawal rather than just the government bonus. This means savers withdrawing money for an unauthorised reason can lose part of their original contributions.
Jackson said: “Because the 25% charge is levied on the entire pot rather than just the bonus, savers effectively lose an extra 6.25% of their own hard-earned savings.”
She added that the penalty had created difficulties for buyers whose preferred property exceeded the frozen £450,000 threshold, as well as those forced to access their savings following unexpected life events.
Reducing the charge to 20 per cent would remove the additional loss of original capital on a full withdrawal, although savers would still forfeit part of their money. Eligible first-home purchases must continue to satisfy the applicable LISA rules.
£4.7bn scheme targets the deposit barrier
The government’s Your First Home scheme is designed to lower the upfront cost of buying a qualifying new-build property.
According to Jackson, eligible buyers could put down a deposit of 2.5 per cent, rather than the more conventional 5 per cent, alongside an interest-free 20 per cent equity loan.
On a £300,000 property, a 2.5 per cent deposit would amount to £7,500, compared with £15,000 at 5 per cent.
Jackson estimates that the combination of a smaller deposit and equity loan could reduce initial monthly mortgage repayments by about £400 compared with a 95 per cent loan-to-value mortgage.
However, the saving will depend on the mortgage rate, loan terms and the buyer’s circumstances. A smaller deposit does not automatically guarantee lower overall borrowing costs.
The hidden cost of an equity loan
The scheme’s headline appeal comes with a significant qualification: the government’s equity share is linked to the property’s future value.
“If your £300,000 property rises to £350,000, paying back that 20% loan will cost £70,000, not £60,000,” Jackson said.
The illustration highlights a key trade-off. Buyers may need less cash upfront, but they could face a larger repayment if their property appreciates.
The scheme is also restricted to new-build homes, where developer price premiums can affect value for money. Buyers should compare qualifying properties with existing homes in the same area before committing.
What first-time buyers should do now
Jackson recommends that prospective buyers take three practical steps.
1. Review existing Lifetime ISA savings. Buyers should understand the revised withdrawal rules, the distinction between qualifying home purchases and other withdrawals, and whether their intended property meets the relevant eligibility requirements. They should confirm when any changes take effect before acting.
2. Compare 2.5 per cent and 5 per cent deposits. A smaller deposit could make buying possible sooner, but buyers should compare mortgage rates, monthly repayments, fees and the long-term implications of an equity loan. An older property with a larger deposit requirement may offer better value in some locations.
3. Prepare mortgage documents early. Jackson advises prospective applicants to organise their financial records, review unsecured borrowing and seek a Mortgage Agreement in Principle. She also points to pre-registration in December ahead of the scheme’s planned spring launch, although buyers should verify the official timetable and eligibility criteria before making financial commitments.
The Budget package could ease some of the barriers facing first-time buyers, but it will not solve the underlying shortage of affordable homes. Its success will depend on whether lower upfront costs translate into sustainable homeownership rather than simply intensifying competition for properties.
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