What will the Help to Buy ISA mean for first-time buyers?

POSTED: 13th April 2015
IN: Personal News

As one of the most significant announcements in the March Budget, what do homebuyers need to know about the new Help to Buy ISA, set to launch this autumn?

undefinedAccording to data from estate agents Your Move and Reeds Rains, the average deposit for first-time buyers reached £29,127 in January, representing a 15 per cent rise on the previous year and placing a strain on affordability for many potential homeowners. This situation is even more acute in the capital, where even those opting for a five per cent deposit will need to pay £29,288, based on an average property price of £585,765.

In order to address this challenge, Chancellor of the Exchequer George Osborne announced a new Help to Buy ISA scheme in the March Budget. Designed to help first-time homebuyers save up for a deposit, the scheme offers individuals a 25 per cent government top-up on savings they put towards their first home.

“A 25 per cent top-up is equivalent to saving for a deposit from your pre-tax income – it’s effectively a tax cut for first-time buyers,” explained Osborne, promising, “We’ll work with industry so it’s ready for this autumn and we’ll make sure you can start saving for it right now.”

Responding to this announcement, Aldermore’s Managing Director of Mortgages & Commercial Lending Charles Haresnape stated:

“This is a welcome initiative that will boost homeownership and help first-time buyers get further support to get onto the housing ladder. The bonus will be available on properties worth up to £450,000 in London and up to £250,000 outside of London and this ensures the bonus will be going to those who really need help to get on the property ladder."

Under the scheme, account holders will be able to invest up to £200 per month into their Help to Buy ISA, plus an initial £1000 on opening the account, and could gain up to £3000 in government contributions in total. Also, since one Help to Buy ISA is available per person, rather than per home, those purchasing a property with a partner or friend can each benefit from this level of support.

Putting this into context, Capital Economics property economist Matthew Pointon told Money Marketing magazine:

“Given the median deposit size, a bonus of £3,000 after four and a half years seems rather small. But it is not hard to come up with a scenario in which the scheme could have a large effect. Assuming a buyer uses the ISA to fund a deposit of 5 per cent, the £3,000 bonus would give them an additional buying power of £60,000.”

However, Money Saving Expert offers a word of warning to those considering the scheme, underlining that savers will not be allowed to contribute to a Cash ISA and Help to Buy ISA in the same year. This means those who open a Cash ISA in the 2015 tax year will need to wait until 2016 to begin saving towards a home through this new route.

What’s more, detractors have questioned whether the Help to Buy ISA alone will be enough to overcome the affordability challenge for potential homebuyers, pointing to the need to boost housing supply in order to stabilise price growth.

“What we really need to help everyone struggling with the high price of housing is planning liberalisation to allow more building and reduce housing costs for ordinary people,” summarised Mark Littlewood, Director for the Institute of Economic Affairs', in an interview with City AM.

Need more information on your options as a first-time buyer? See what our bank can do for you.

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