A financial analyst has claimed that Help to Buy ISAs are no longer beneficial to buyers and are actively making it more difficult for first time buyers to get on the property ladder.
As of June this year, six and a half years after its introduction, Help to Buy ISAs have been used to buy 514,868 homes.
Throughout its run the average value of a property bought through the scheme is £176,456, compared to an average first-time buyer property price of £246,776. In addition to this, between April and the end of June, 8,018 properties were bought with a Help to Buy equity loan – taking the total to 369,104. The scheme was closed to new entrants in 2019.
Although, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, claims that Help to Buy ISAs are no longer fit for purpose as she stated:
“Help to buy ISA rules are making it harder for first-time buyers to snap up their first home, because only those buying bargain properties can take advantage of the government bonus. The allowance outside London hasn’t changed in the seven years since the scheme started, while prices are up by more than 50% – and it’s not the only allowance that’s not fit for purpose.
The average price of a property bought through the scheme is far lower than the average for first-time buyers overall: people have either had to settle for a cheaper home or forgo their bonus. Meanwhile, there are now only three regions of the UK where you could buy the average property for less than the regional cap of £250,000, and in London, the average price is now £103,000 higher than the London cap of £450,000.
The government needs to reconsider the limits on the Help to Buy LISA, and the Lifetime ISA. They should be linked to house price inflation, so buyers have the security of knowing that however long they save for, and however house prices move in the interim, they will be protected. The government also needs to reconsider the fact that LISA savers have to pay a 25% penalty if they buy a property worth more than £450,000. This doesn’t just remove the government bonus, but a chunk of their own savings too. It’s ludicrous that people should be penalised for trying to do the right thing and being hit by forces out of their control.”
However, Coles did claim that a what could be more beneficial is a Lifetime ISA (LISA) as she explained:
“If you have a Help to Buy ISA, you’re based outside London, and you want to buy a property costing more than £250,000, one option is to transfer to a Lifetime ISA. That way you can take advantage of the nationwide £450,000 allowance. You can also put more into a LISA – £4,000 a year – and the government will immediately top it up by 25% – so you could get £1,000 a year from the government to help you onto the property ladder.
However, you need to follow the rules. It means you must be aged 18-39 (unless you already have a LISA) and you need to wait at least a year between the first money going into your LISA and the day you buy. You also need to be aware that you’ll pay a penalty if you don’t end up using it for a first house purchase, or holding it until retirement. If you’re concerned you may need to switch, it’s worth thinking about it sooner rather than later. You don’t necessarily have to switch all the money over immediately, just funding it with £1 will start the clock ticking.
You also need to understand the mechanics of the switch. If you have more than £4,000 in your Help to Buy ISA, you can only switch £4,000 in each tax year. Money that’s switched will eat into your allowance for the current year, so if you use it all up with a switch, you may need to put cash you’re saving for a deposit somewhere else until April. It might still be worth it, because a 25% bonus on £4,000 is still better than a 0% bonus on everything in your Help to Buy ISA. However, you’ll need to calculate the best approach for your circumstances.”
Quarterly statistics on the Help to Buy ISA to March 2022 were published on Thursday the 10th of November which you can view here: Official_Statistical_Publication_HTB_ISA_Q2_2022.pdf (publishing.service.gov.uk)
Help to Buy (equity loan) data was also on the same date which you can view here: Help to Buy: equity loan scheme: data to 30 June 2022 – GOV.UK (www.gov.uk)
