The Government has launched a consultation around the potential introduction of a new first-time buyer (FTB) ISA, which is set to be offered in place of the lifetime ISA (LISA).

The paper from the Treasury stated that there is evidence that the LISA product, which was introduced in 2017, is not working for many savers and is too confusing, and it is therefore withdrawing it.

However, the Government said it is committed to making the "aspiration of home ownership a reality" for as many FTBs as possible, coinciding with its commitment to build 1.5 million homes in England during this parliament.

Under the FTB ISA plans, the new product will help FTBs of all ages and is designed to work within the existing ISA system, while providing greater flexibility for savers whose circumstances change.

LISA holders will be allowed to save into accounts in line with existing rules indefinitely.

The FTB ISA will be solely for the purpose of buying a first home and will include a Government bonus, paid at the point an individual makes a withdrawal for purchasing their first home. This removes the need for a withdrawal charge and allows the saver to withdraw funds, should their circumstances change, without penalty.

People saving for their first home through the FTB ISA will be able to save up to a certain limit a year, which will count towards their ISA allowance, and can be put towards any home valued up to a set price cap and purchased with a legal mortgage, although these figures have not yet been outlined.

Analysts have pointed out that these missing details will be a cause of concern for some.

Head of public policy at AJ Bell, Rachel Vahey, stated: "The LISA has helped thousands of young people take their first step onto the property ladder. But the product has never been perfect, and the withdrawal charge has caused real problems for savers who need to access their money for any reason other than buying a qualifying first home or reaching age 60.

"The Treasury will not allow current LISA holders to transfer to the new FTB ISA. But both products will be allowed to be used towards the same purchase. This leaves LISA holders potentially juggling two products ahead of their life-changing purchase.

"The Treasury has been strikingly quiet on what this means for self-employed people saving for later life. Those who already have a LISA ISA will be able to keep saving, but that does nothing for the thousands of self-employed workers and others without access to a workplace pension who may need a flexible retirement savings option in future."

The consultation aims to seek views on the design and implementation of the new FTB ISA, with the views expressed informing the Government’s final approach.

The Government said that all views are welcome within the scope of the consultation, and it is particularly interested in hearing from individuals who currently hold or previously held a help to buy ISA or LISA, prospective FTBs who may be interested in a FTB ISA and industry representative bodies.

Responses should be sent to the Treasury by 17 August.

While analysts have pointed out missed steps in the consultation, it has been welcomed by others in the industry, with strategic lender relationship director at Mortgage Advice Bureau, Rachel Geddes, stating that it is a "positive step" to help more people turn homeownership into a reality.

She concluded: "The consultation recognises that today's buyers need greater flexibility and support as they save for a deposit. This is particularly important given our findings that 44% cite deposit concerns as a key barrier, while many overestimate how much they need to save before they can buy.

"For the mortgage market, measures that encourage deposit building and improve confidence could help bring more FTBs into the market sooner, strengthening the pipeline of mortgage-ready borrowers. Product innovation is important, but our research shows the industry must also address the confidence and awareness gap that continues to prevent many aspiring homeowners from taking their next step."

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