19-03-2015
Help to Buy ISA – How does it work?
Following the announcement of the ‘Help to Buy ISA’ in yesterday’s budget speech we take a look at how it works and assess how effective it will be in helping first time buyers to get onto the property ladder.
Let us start by looking at the facts about the new savings scheme for first time buyers:
- First time buyers can save £200 per month
- UK Government will contribute 25% on top up to a maximum of £50 per month
- Maximum amount that can be saved in the Help to Buy ISA in any one tax year is £12,000
- The government would therefore top up the ISA to a maximum of £15,000
- The ISA will accrue interest resulting in an amount higher than £15,000
Questions and Answers:
Is the ISA open to everyone?
No. Only First time Buyers over 16 years old.
How long is the account open for?
It will be open for 4 years
Can I buy any property with the Help to Buy ISA deposit?
You can buy a house or a flat with a value up to £250,000 outside of London or £450,000 in London.
Can I buy a buy to let property with the ISA?
No. It must be used to purchase your first UK property in which you intend to live.
I save in an ISA each year can I now have 2 next year?
The ISA is still classed as a cash ISA and therefore you will only be able to take out the Help to Buy ISA and no further cash ISA in that tax year.
How many can be used in one property purchase?
If you are buying in joint names then you can use 2 Help to buy ISA’s which would equate to a deposit of £30,000 which would include £6,000 from the government.
When Can I start saving!?
The ISA’s are available from the Autumn but you could start putting money aside to place into it when they launch as max deposit is £1,000.
Our thoughts….
We think that the Help to Buy ISA is a great scheme. It is a fantastic incentive to save a deposit for your first home and we expect a big take up, the government do too and have said they expect over 1,000,000 First time Buyers to use the scheme!
With interest rates on ISA’s very low due to record low interest rates this offer of 25% tax free interest courtesy of UK Government is very attractive!
Lenders are currently offering 95% loan to value mortgages and although there have been rumours of 100% lending we believe that encouraging First time buyers to save is a much better way to buy your first property and it installs a mind-set of budgeting and saving. Putting money aside each month and budgeting your finances to save now is good practice for owning a property and managing your finances as a home owner.
We often see first time buyers struggling to save enough money to buy a property because each month they save, the property they require will have gone up in value (in most regions of the UK). The added bonus from the Government will help First time buyers get to their required deposit amount sooner.
What does worry us is that the scheme may see property prices increase quicker than they may have otherwise done as there will now, we expect, be more first time buyers wishing to get onto the property ladder over the coming years.
Look at the facts; With the average UK Property price now £179,492* and the minimum deposit required to buy a house 5% (£8,975). Saving £200pm would take 3 years…..all the while property prices are forecast to increase by around 3 – 5% for 2015.** First Time Buyers are still up against it.
Add to that the pension reforms from next month whereby so called ‘grandlords’ have the option to cash in their pensions and buy property as an investment instead of an annuity and we could see property prices increasing more rapidly because of these two factors.
Our top tip is to start saving now ready to deposit the maximum £1,000 possible in the Help to Buy ISA when it launches in the Autumn, that way you can reach the maximum amount possible in the scheme as soon as possible!
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