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Posted: 20th April
By: rlf

What you need to know about Help-To-Buy ISAs?

In an economy where there are poor returns on savings, slow wage growth, and high house prices, there is some good news for prospective first-time buyers in the form of Help-To-Buy ISAs.

In this year’s Budget, Chancellor George Osborne announced these new measures to help first-time buyers get onto the property ladder.

How does the scheme work?

For every £200 a first-time buyer saves towards a deposit on their first property, the Government will top it up with £50. So, if a first-time buyer saves £12,000 for example, the Government will add £3,000 to the pot – making it up to £15,000; (the average sized deposit for a property in the UK.)

The Government contribution is capped at £3,000, and will only be released on the purchase of a property.

The bonus can be put towards a first home with a purchase value of up to £450,000 in London and up to £250,000 in all other parts of the UK.

This ISA, which is a follow up measure to the Government’s Help to Buy phased scheme, will be available from the autumn. Accounts will be available through banks and building societies, and can be opened for a maximum period of four years from the start date of the scheme.

Support

The scheme will be welcomed by prospective first time buyers, who often find that saving for a deposit is a bigger problem than finding money the monthly mortgage payments. It will also encourage people to save, which is a far better way of tackling the issue of high house prices than increasing loan-to-values.

The scheme will also be music to the ears of the parents and relatives of first-time buyers, who are often relied upon to help with deposits. This is evident from last year’s figures, which showed that as many as 52% of purchases by new buyers were made with help from the ‘bank of mum and dad’.

Criticism

Anything that gives a boost to Britain’s young people looking to get on the housing ladder is welcome. However, the Help to Buy ISA is not addressing the fundamental housing shortage. Larger deposits for first-time-buyers are only one piece of the puzzle – we also need suitable, affordable housing stock for first-time buyers to access.

The announcement has also been met with criticism, as first time buyers will need to save £200 per month over 4 years to get the maximum benefit of £3,000. The measure will therefore not benefit those currently unable to get on the housing ladder – it will only benefit long term savers looking to buy in a few years time. Not only that, but during the four-year period, house prices could have risen by up to £40,000, requiring a much more substantial deposit.