The government recently announced a new scheme which could enable first-time buyers to buy a qualifying new-build home with a 2.5% deposit. Full details are due to be shared in the Autumn Budget on 28 October, but here's what we know so far and how your Lifetime ISA could help.
How does the Your First Home scheme work?
1. A 2.5% deposit
You'd need a deposit of just 2.5% of the purchase price, half the 5% minimum most lenders ask for.
2. A 20% government equity loan
The government lends you 20% of the home's purchase price, and your mortgage covers the remaining 77.5%. A smaller mortgage can mean lower interest rates, and the government says the loan will be interest-free to start.
Here's how that could look on a home costing £225,199, the average first-time buyer asking price according to Rightmove (September 2026):
Your deposit (2.5%): £5,630
Government equity loan (20%): £45,040
Your mortgage (77.5%): £174,529
3. New builds in England only
You’ll need to buy a new-build home from a developer signed up to the scheme. There will also be a household income cap and local price caps. According to The Times, the income cap could be £90,000 outside London and £110,000 in London, though the government has said this is speculation until the full details are published. There are also reports of a possible limit on how much deposit you can put down.
Can I use my LISA with the Your First Home scheme?
While this hasn’t yet been confirmed, LISAs could be used with the old Help to Buy scheme (2013-2021), so we'd anticipate the same here. The one thing to watch is the possible deposit cap, which could limit how much of your LISA savings you can use. We'll update this once the rules are confirmed.
The LISA bonus could give your deposit a boost and the scheme could get you there years sooner. Saving £200 a month into a Lifetime ISA, with the 25% government bonus on top, you could have a 2.5% deposit on an average first-time buyer home in just under two years. Saving for a 5% deposit would take nearly four.
If you can save the full £4,000 allowance, the government adds £1,000, giving you £5,000 in your first year, most of the way to a 2.5% deposit.
Remember the LISA rules:
Your can only withdraw from your LISA a minimum of 12 months after opening it
The home must cost £450,000 or less
Withdrawing for anything other than a first home or retirement means a 25% charge
Things to think about
The loan has to be paid back. The government hasn't yet said how long it stays interest-free or what you'll pay after that. It's worth planning how you'd repay it.
A small deposit means less of a cushion. If house prices fall, you could end up owing more than your home is worth. This is called negative equity.
It might not affect you day to day, but it can cause problems later. If you sell, you'd need to cover any shortfall between the sale price and what you owe from your own savings. And when your mortgage deal ends, you may struggle to switch to a new one, leaving you on your lender's more expensive standard rate.
New-build flats carry the biggest risk. According to analysis by estate agent Hamptons, 38% of new-build flats resold in England and Wales in 2025 sold for less than the owner paid, compared with just 6.3% of new-build houses. That's partly because new builds sell at a premium for being brand new, which disappears when they're resold, and partly because service charges and ground rent can put off future buyers.
What happens next?
Full details arrive in the Autumn Budget on 28 October, and registration is expected to open by the end of 2026. We’ll update this article once we know more, including whether the Lifetime ISA can be used alongside the scheme.
Whether or not you use Your First Home, a Lifetime ISA can help you save for your first home with a 25% government bonus. You’ll need to have held it for at least 12 months before using it to buy.
A 25% government penalty applies if you withdraw money from a Lifetime ISA for any reason other than buying your first home (up to £450,000) or for retirement, and you may get back less than you paid into your Lifetime ISA.
Tax treatment depends on individual circumstances and may be subject to change in the future.