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Help to Buy ISA limits overtaken by runaway house prices

Emma Lunn
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Emma Lunn

Rising house prices mean first-time buyers are not feeling a significant benefit from the Help to Buy ISA scheme.

Government figures from September show that the average price of a property bought through the Help to Buy ISA scheme was £175,680, compared to an average first-time buyer house price of £225,607 and a national average house price of £269,945.

Since then, the national average has risen to a record high in December of £274,712 – up £27,000 in a year, while the average first time property costs £228,627.

Since the launch of the Help to Buy ISA in 2015, 460,567 property completions have been supported by the scheme. A total of 604,720 bonuses have been paid totalling £674m with an average bonus value of £1,115.

The median age of a first-time buyer in the scheme is 28 compared to a national first-time buyer median age of 30.

The Help to Buy ISA scheme enables people saving for their first home to receive a 25% boost to their savings from the government when they buy a property of £250,000 (£450,000 in London) or less.

This means that for every £200 saved, first-time buyers can receive a government bonus of £50. The maximum government bonus is £3,000. The scheme closed to new accounts on 30 November 2019.

Myron Jobson, senior personal finance analyst at Interactive Investor, said: “It would be unfair to call the Help to Buy ISA a failure, but it would be a stretch to call it a success. Every little helps when it comes to purchasing a home, but the average bonus of £1,115 barely covers home survey and legal fees as well as other costs associated with buying a property.

“The initiative fell by the wayside following the introduction of its spiritual successor the Lifetime ISA, which offers more generous benefits for those who know without a shadow of a doubt that their savings will be used towards purchasing a property.”

Lifetime ISAs were introduced in April 2017 for people aged over 18 and under 40. You can put in up to £4,000 each year, until you’re 50. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. You can use a Lifetime ISA to buy your first home or save for later life.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “Runaway house prices risk overtaking the Help to Buy ISA limits. At times like this, first-time buyers need government schemes more than ever, so it’s a real kick in the teeth that many will get to the point of buying a property and discover they can’t take advantage of the bonus.

“When the Help to Buy ISA was launched in December 2015, the average price paid by a first-time buyer was less than £175,000, so the limit of £250,000 (and £450,000 in London) gave buyers plenty of scope to find the home they wanted.

“In the seven years since, the average first-time buyer price has risen more than a quarter to over £225,000 and the limits haven’t moved an inch. As a result, 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.

“The government needs to reconsider the limits on the Help to Buy LISA, and the Lifetime ISA. Setting a fixed limit and then walking away to leave buyers to wrestle with rising prices isn’t good enough. Overall limits need to be linked to house price inflation, so buyers know they won’t be getting into a scheme they could be forced out of by a hot property market.”

Other government statistics released today show a disappointing start to the government’s 5% deposit home buyer policy. Just 3% of all residential mortgage completions in the UK were through the government’s mortgage guarantee scheme, according to HM Treasury statistics.