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Help to Buy ISA house price limit ‘not fit for purpose’

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Half a million homes have been bought under the Help to Buy ISA scheme, but as average house prices have risen while the property limit remains unchanged, it’s no wonder its use has dwindled.

In the first six months of this year, just over 34,000 property completions took place by first-time buyers with the Help to Buy ISA scheme.

Compared to the previous full year, there were 94,000 completions, showing the rate has slowed down this year already.

The Help to Buy ISA scheme launched in December 2015 allowing first-time buyers to get a 25% boost to their savings, with a maximum £3,000 from the government. It closed to new savers in November 2019.

To date, first-time buyers have received £786m in government bonuses with the total value of properties bought standing at £90.8bn.

While 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 against the national average house price of £295,903, experts say the property price limit means the Help to Buy ISA “is not fit for purpose” which could explain the slow down in take up.

Under the Help to Buy ISA rules, it’s available on properties worth £250,000, or £450,000 in London.

‘Not fit for purpose’

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown said the Help to Buy ISA rules are making it harder for first-time buyers to get on the property ladder.

“Only those buying bargain properties can take advantage of the government bonus,”  she said.

Coles added: “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.”

Back in March 2022, shared the story of sisters Claudia and Noemi Mancuso who had to forego £4,000 of their Help to Buy government bonus because of soaring house prices. And others have also had the same experience.

Coles said the government needs to reconsider the limits on the Help to Buy ISA, which should be linked to house price inflation.

According to Laura Suter, head of personal finance at AJ Bell, if the limit had risen in line with average UK property prices, it would be £360,000 today.

She said that at launch in December 2015, average house prices stood at £205,000, but at £296,000 now, it’s far higher than the limit which means “more and more people will be priced out of using the ISA to buy a first home”.

Suter added: “While some of the drop-off in Help to Buy ISA usage might also be down to fears of a house price crash putting off first home buyers, as the data only runs until the end of June it likely pre-dates many of these worries.

“The drop-off also can’t even be blamed on the recent mortgage market turmoil, which saw rates soar and many delay their house buying plans as a result, as this happened in September. Both of these factors mean we could see an even larger drop in Help to Buy ISA usage this year than expected.”

Help to Buy Equity Loan statistics

Separate statistics from HMRC also revealed completions in Q2 under the Help to Buy Equity Loan scheme stood at 8,000 properties, down 26% on the same period last year.

The total value of equity loans came to £612m while the total value of properties was pegged at £2.45bn.

Help to Buy closed for new applicants at the end of October, but the developer should finish building the home by 31 December and legal completions have a deadline of 31 March 2023.

Last week, explored 10 possible alternatives to the Help To Buy scheme.

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