The Help to Buy ISA gives people saving for their first home a 25% boost from the government when they buy a property up to the value of £250,000 across the UK or £450,000 in London.

While it is now closed to new savers, 2.5 million people have opened the Help to Buy ISA since it was launched in 2015.

Despite rising property prices, the house purchase limit hasn’t increased, meaning Help to Buy ISA savers risk being priced out of owning their first home.

A year ago, average house prices were below the £250,000 Help to Buy limit. But now, they stand at an average £275,000. Essentially anyone buying a property at this price in the UK (excluding London) would not be able to claim the government bonus after saving into the ISA.

As such, they could miss out on up to £3,000 from the government.

Analysis by AJ Bell revealed that if the limit on the Help to Buy ISA increased each year in line with average house price growth, it would sit at almost £336,000 today.

Lifetime ISA

The Help to Buy ISA allowed applicants to save up to £1,200 in the first month and then up to £200 a month after that. A 25% bonus was then added, so for every £200 saved, the government contributed £50, with a maximum saving of £12,000 and maximum bonus of £3,000.

The Lifetime ISA was introduced in April 2017 for people aged 18-39. It allows a maximum of £4,000 to be deposited each year, until the age of 50. This can be in a cash account or stocks and shares Lifetime ISA.

The government will add a 25% bonus to savings, up to a maximum of £1,000 per year. The Lifetime ISA can be used to buy a first home up to the value of £450,000 across the UK or to save for later life.

Savers can put away a total of £128,000 which is matched by a maximum government bonus of £32,000. There’s no maximum monthly contribution; you can save as little or as much as you want each month as long as you don’t exceed the £4,000 a year limit. With the Help to Buy ISA, if you miss one monthly payment, you can’t make it up the following month.

Withdrawals in the first 12 months of opening the Lifetime ISA or for any reason other than buying your first home or retirement from age 60, are subject to a 25% penalty on the whole amount.

Laura Suter, head of personal finance at AJ Bell, said: “Anyone buying in more expensive areas outside of London, in the south-east for example, or who knows their property price will exceed £250,000 could consider switching to a Lifetime ISA, which has a higher limit of £450,000 regardless of where in the UK you are buying a home.

“However, anyone switching to a Lifetime ISA needs to be mindful of a few rules, to make sure the accounts are right for them. The biggest one is that the account needs to be open for a year before you buy a house, so it’s no help if you plan to buy in the next 12 months. But with a higher property limit, higher contribution limit and higher potential government bonus, you could get more free money by moving.”