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Help to Buy Isas cut home-buying wait by three years

Find out whether you could benefit

First-time buyers who save into a Help to Buy Isa are able to purchase their first home three years before those who don’t, new figures released by HM Treasury suggest.

Covering the period from when the savings product was first launched in December 2015 to the end of March 2018, it was reported that £157m in bonuses had been paid out to 196,007 first-time buyers, who had an average age of 27.

The average age of first-time buyers who don’t have a Help to Buy Isa is 30, according to the Council of Mortgage Lenders (now part of UK Finance).

Which? looks into where in the UK the Help to Buy Isa has proved most successful, and where it might be falling short of its promise to turn the property ownership dream into a reality.

  • Looking to buy your first home? For impartial, expert advice on finding the right mortgage for you, call Which? Mortgage Advisers on 0800 197 8461.

Who is the Help to Buy Isa benefitting?

The Help to Buy Isa can be seen as a real success in areas where house prices are cheaper compared to the national average.

The government paid out an average bonus of £800, which requires savings of £3,200 – a sum which, if people use the maximum deposit allowance, can be saved in just 11 months.

This leaves buyers-to-be with at least £4,000 to put towards a deposit and other housing fees and costs.

The areas where the most bonuses were paid are in North West England and the Humber – combined, both areas account for 24% of all bonus pay outs. The average property values here are £148,098 and £145,313, respectively.

Assuming first-time buyers were saving for a 5% deposit in these areas (requiring, say, £7,250 in the Humber) and received the average £800 bonus, this would make up more than 10% of their deposit – a significant chunk.

It’s likely that many of these homes were in cities, as 3,907 bonuses were paid for properties bought in Leeds – the highest amount in the UK.

Nearby, 2,254 bonuses were paid to people buying in Sheffield.

The map below shows the number of Help to Buy Isa government bonus pay outs made across the UK between December 2015 and March 2018.

Where is the Help to Buy Isa falling short?

Considering the city’s size and population, relatively few Help to Buy Isa bonuses have been paid in London.

The highest number, 1,357, were paid in Croydon, followed by Lewisham at 1,080.

The areas where the fewest Help to Buy Isa bonuses were paid include Kensington and Chelsea, where there were only nine, and there were just 24 in Westminster. This is perhaps unsurprising, as the average house price in these areas exceeds £950,000 – far out of reach for most first-time buyers.

First-time buyers in London can purchase properties of up to £450,000 using the Help to Buy Isa, more than the £250,000 maximum in place for those buying in the rest of the UK.

But just 7% of the properties bought using Help to Buy Isas had a value of more than £250,000.

This may be because the Isa doesn’t make enough of a difference to those trying to buy in the capital. Even if a first-time buyer saves enough to qualify for the maximum government bonus of £3,000, a sum that requires £12,000 of savings, they’re left with £15,000 to put towards a deposit.

For a property costing £400,000, they’d still be £5,000 short of just a 5% deposit.

The figures suggest that first-time buyers in London cannot rely on the Help to Buy Isa alone in their efforts to save for a deposit, unless, perhaps, a couple or friends buying together pool more than one Isa into a deposit.

Savers have also been hindered by the fact that several banks and building societies providing Help to Buy Isas have been slashing their interest rates since the product launched.

Where it was once possible to find a Help to Buy Isa offering a 4% interest rate shortly after it launched, the market-leading rate has now dropped to 3%, which is only available at one regional building society.


What other schemes are available for first-time buyers?

Help to Buy equity loan

The Help to Buy equity loan can be used by both first-time buyers and home movers to help purchase new-build properties.

The government will provide a loan of up to 20% of the property’s value (or 40% in London), as long as you put down a deposit of at least 5% and get a mortgage to cover the rest.

While getting a deposit for a smaller percentage of the property means you could get a better deal, you may end up paying back more of the equity loan than you borrowed if the value of your property increases – as it remains a percentage of the property, rather than a fixed amount.

The loan’s interest rate also rises substantially after the first five years, and must be completely paid back either after 25 years, when your mortgage term finishes or when you sell your home – whichever happens first.

Lifetime Isa

The lifetime Isa is an alternative government-backed savings option, where you can either use the money saved towards your first home or in retirement after you’ve reached the age of 60.

Current providers offer cash or stocks and shares versions of the Isa, and whatever you save each month will receive a 25% government bonus up to a maximum of £1,000 per year.

Withdrawing the money for any reason other than buying your first property or when you’re over 60 results in a withdrawal penalty, which means you’ll lose the government bonus plus any growth and an additional 6.25% on the money you withdraw – so you’d end up losing some of your own money.

Shared ownership

The shared ownership scheme isn’t only for first-time buyers, but it is an option for those who can’t afford to buy a full share of a property.

Housing associations sell off portions of properties for people to buy, so you’ll own between 25-75% of your home, and pay rent to the association for the section still owned by them.

You can buy greater shares of the property through ‘staircasing’, providing you can afford to buy at least 10% at a time.

Those with a household income of less than £80,000 outside London, and £90,000 in London, are eligible.

What is the Help to Buy Isa?

The Help to Buy Isa is a savings product that first launched in December 2015 as part of the wider Help to Buy scheme.

The aim of the Isa is to help first-time buyers save for a deposit, offering a 25% government bonus on the money saved into the account, up to a maximum of £3,000 on savings of £12,000.

Anyone who wants to buy their first house is eligible for a Help to Buy Isa – but it’s worth noting that Help to Buy Isas are all cash Isas, so if you pay into them you won’t be able to pay into an alternative cash Isa in the same tax year.

You’re able to pay in up to £1,200 in the first month of opening the Isa, but after this you can only pay in up to £200 a month.

To qualify for the minimum £400 government bonus, you have to pay in up to £1,600 – you can do this in just three months if you pay in the maximum deposits.

To qualify for the bonus – which will be paid to your conveyancer or solicitor after you’ve closed the account in order to buy a property – you must use the money you’ve saved to buy your first home, and the property must be worth less than £250,000, or less than £450,000 if it’s in London.

The Help to Buy Isa is due to close to new savers from November 2019.

Existing Help to Buy Isa holders can continue to save, and will still receive the government bonus, as long as it’s used by 1 December 2030.

If you’re a first-time buyer looking to get onto the property, Which? Mortgage Advisers can help you find the right mortgage deal for your circumstances. Arrange a call using the form below.

Your home may be repossessed if you do not keep up repayments on your mortgage.

Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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