Replacing monthly payments on a first-time buyer (FTB) ISA with a single pay out could see savers lose out on around £3,606 when purchasing their first home, Moneybox has revealed.

Ahead of the closure of the FTB ISA consultation later today, the wealth management platform warned that terms being considered for the replacement product will widen the deposit gap for future buyers, with over £3,600 being lost in compound interest over a 10-year period.

It comes as research by Moneybox found that 71% of FTBs said getting on the ladder is taking longer than expected, with cost-of-living pressures (47%) and high rents (38%) cited as the primary hurdles.

Deposit struggles are also leading to FTBs putting the brakes on major life milestones, with 20% delaying having children and 19% putting off saving for retirement.

Furthermore, Moneybox said proposed rules banning transfers from Stocks & Shares FTBS ISAs to cash versions would leave buyers unable to safeguard their deposit from market drops in the final weeks before exchange.

Moneybox has therefore urged the Treasury to retain and evolve the lifetime ISA (LISA) for future savers, rather than replace the product for the third time in a decade.

It has also called for two targeted updates to future-proof the product, including committing to an annual review of the £450,000 house price cap to keep in line with the market, and reducing the withdrawal penalty to 20% so savers who exceed the cap don’t lose any of their own money.

Director of personal finance at Moneybox, Brian Byrnes, stated: "FTBs are already finding it exceptionally hard to save enough to secure a favourable mortgage, with 71% watching their timeline slip and many forced to put major life decisions like starting a family on hold.

"The terms being considered for the new replacement product risk widening this deposit gap further. Withholding the bonus until completion takes over £3,600 in compound growth away from a dedicated 10-year saver, while banning transfers to cash before exchange leaves deposits unnecessarily exposed to market volatility.

"Rather than introducing a whole new product, the Treasury should evolve the LISA to ensure it keeps working for everyone. Committing to an annual review of the house price cap and reducing the withdrawal penalty to 20% means savers will never lose any of their hard-earned money—giving future homeowners the certainty and support they urgently need."

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