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First-time Buyer

‘We’ll lose £4k Help to Buy ISA bonus due to wild-west property market’

Paloma Kubiak
Written By:
Paloma Kubiak

Professional sisters looking to buy their first home say the out-of-control property market has pushed them over budget, and way over the Help to Buy ISA limit so they’ll miss out on thousands of pounds in government bonus under the scheme.

Claudia, 44, and Noemi Mancuso, 32, have rented their sea-view flat in Bournemouth for the past eight years.

With decent jobs in finance and decent salaries, they were in the “privileged position” to begin saving in a Nationwide Help to Buy ISA to help them get on the property ladder.

Claudia opened hers in 2020, while Noemi opened hers in 2019, each saving around £150-£200 a month.

Initially they wanted to buy separately since they are “adult siblings and not a couple”, and because two-bedroom properties tend to have one decent-sized bedroom and one box room.

But as they viewed more properties, they realised they were being slowly priced out. Based on their salaries and location, they could just about afford a studio flat each.

“We are stuck in the middle of ‘not being poor’ but not having significant cash flows to be able to cope with the craziness of the current market, inflation and rise in the cost-of-living.

“Although we always had in mind to buy a property, we never wanted to do the step together. We were working towards a decent deposit to be able to buy individually,” Claudia says.

The operations manager at financial software development company Twenty7Tec (ironically it helps brokers source mortgages for their clients) says they had a plan to save into their individual Help to Buy ISAs for another year, then look to buy. Based on this, they would have saved enough into the government scheme to receive a £4,000 bonus.

Eviction notice out of the blue

Their plan was quashed when they received an eviction notice giving them until 18 April 2022 to move out as the landlord wanted to convert the building into more lucrative holiday lets.

Having been on a rolling monthly contract since September 2021, they can however ‘pay as you go’ for £350 extra a month until they find another property, taking their current rent to £1,600 a month, excluding bills.

The Italian, who moved to the UK amid the 2008 financial crisis, says: “We panicked. Rental properties of similar size increased to the point that we started thinking it’s not worth it anymore as we wouldn’t be able to save enough, or as planned. So, we decided to change to ‘plan B’ and buy together. We could then either sell in two years’ time or use it as a joint rental investment, to then go back to our original plan and buy our own properties.

“It makes sense. It is only a setback. Two is better than one. We’ll join forces, savings, and share the costs which is better than facing them on your own, especially considering where the cost-of-living is going,” she says.

‘Goodbye good intent ISA bonus’

Their new-found hope quickly turned sour. With a shortage of supply, they were priced out of the two-bedroom properties they previously rejected, three-bedroom homes were completely out of budget, and every property appeared to be over-priced.

“You start looking at something decent that you can afford, but you get gazumped by people who are not even letting you think about the property you have just seen – they have already offered at least £10,000 more than the asking price. It is the wild-wild west out there. We were still hopeful until another reality check. We will not find anything decent to buy jointly for less than £250,000. Goodbye good intent ISA bonus.”

The sisters said this sum could have helped them furnish their property and cover other moving costs.

Help to Buy ISA and Lifetime ISA

The Help to Buy ISA scheme allows people to double their bonus if buying together, but it can only be used on properties up to £250,000 (£450,000 in London). While the scheme is now closed to new entrants – it was superseded by the Lifetime ISA – first-time buyers can save a total of £12,000 each where the government adds a 25% bonus worth up to £3,000.

Claudia says: “You would think the [house price] limit is per person so if I buy a property on my own, I have a limit of £250,000 – sounds reasonable even with the price increase. But, if I buy with someone else, we will be on a joint mortgage, each of us potentially using our own Help to Buy ISA savings and buying only half each of the property. So, it is logical to me that the limit should be per person not per property.

“We are definitely going to lose out on at least £4,000 (combined) worth of bonus because the house prices have gone up so much that in Bournemouth, you cannot buy anything with that limit for two adults to live in.”

She says they considered moving further out, even to Southampton and surrounding areas, but admits “that is a life-changing decision”.

“We wanted to stay close enough to where our work and friends are”, Claudia says.

Noemi, a senior auditor at Nationwide Building Society did consider transferring to a Lifetime ISA which is available to people under the age of 40, has a higher £450,000 property value limit and comes with a maximum 25% government bonus of £32,000.

But with the current fast pace of the market, the Lifetime ISA rules state that holders need to wait one year before buying, and they didn’t want to pay another year of rent as well as watch house prices runaway further.

At the time they opened their Help to Buy ISA, they weren’t aware of the Lifetime ISA, and Claudia was already over 40 so wouldn’t have been eligible.

‘Buying a property in this climate is nerve-racking’

Claudia says the nil stamp duty limit of £300,000 for first-time buyers is also “outdated”, and the sisters have now viewed 15 properties in total. They’ve made three offers – all above their ideal budget, but one offer has been accepted which is “exciting and scary at the same time”.

They reluctantly asked their parents back home in Italy to help out so they will be gifted some money for the deposit to help them buy a three-bed flat. While advertised at £330,000, they negotiated the price down to £323,500.

Claudia says: “I think the property market is out-of-control and there is a need to regulate it to protect buyers.

“I can’t understand how you see new buildings and housing being built everywhere, yet we have a lack of supply that is pushing prices so high. It is concerning, and I think everybody is watching this space fearing another crash, fearing another 2008.

“Buying a property in this climate is nerve-racking, as who knows if in two years’ time I will have negative equity on my shoulders. There is a lot of noise about the house price rocketing. However, the government is not moving fast enough and many of us are left on our own, struggling, while those who have cash flow come and steal any opportunities that may come up.”

The Italian who originally came to study Applied Theology in the UK but who “fell in love with this country” also criticised the higher London allowances.

“I know London properties are more expensive, but does the government realise that since Covid, Londoners are buying homes by the coast because they can afford better houses with their London-based salaries, contributing to this price hike – yet the higher limit of £450,000 still only applies for London?

“We are still in a world where London has all of the extra allowances. It’s time to review this also.”

‘Aspiration of home ownership a reality’

The Treasury can’t comment on specific cases, but said it is committed to making the aspiration of home ownership a reality for as many households as possible.

The Help to Buy ISA has played a vital role in supporting first-time buyers who are struggling to save enough to get on the property ladder.

While all savings policies are kept under review, the property price cap of £250,000 for properties outside of London (£450,000 in London) allows the government to target support at the people the scheme is intended to help.

By the end of September 2021, 604,720 bonuses had been paid through the scheme to first-time buyers supporting 460,567 property completions since the scheme’s launch in December 2015. A total of £674m has been paid out in bonuses.

Further, the mean value of a property purchased through the scheme is £175,680, compared to an average first-time buyer house price of £225,607.

However, according to the latest Halifax House Price Index, prices stand at an average high of £278,123, while Nationwide’s House Price Index revealed the average price of a home in the UK in February was £260,230, up  £29,000 in just a year.

Following the publication of the lenders’ data, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown said the runaway house prices mean we’re getting perilously close to the day when nobody using the scheme can afford to buy an average starter home.

“It means that people who started a Help to Buy ISA in good faith back in 2015 could get to the point of purchase and realise they won’t get the bonus they were expecting.”

She called on the government to link the property price limits with house price inflation. Alternatively, savers could consider the Lifetime ISA if they’ve got a longer time-horizon.

With the Spring Statement set for this Wednesday, will keep a close eye on accompanying documents to see if the Help to Buy and Lifetime ISA limits and rules may change.