First time buyers are being offered up to £3,000 each to put down as a home deposit through a new help-to-buy Isa unveiled in the chancellor’s budget.
How will it work?
First-time buyers who save in a help-to-buy Isa will have their savings boosted with a payment from the government when they decide to buy a property. The bonus will be equal to 25% of their savings, so for every £200 they save, the government will give them £50.
The maximum amount that can be put into the Isa and boosted is £12,000 – the government’s payment will top this up to £15,000.
The bonus is being offered for each person, not each house, so a couple will be able to get up to £6,000 towards their purchase.
As well as the government bonus, the Isas will also pay interest.
Will I qualify?
Anyone aged 16 and over who has never owned a home will be able to open an account. The payment will be made towards a first home – it cannot be used to fund a buy-to-let property, even if the buyer does not own another home.
The cost of the homes that the account can be used to buy is capped at £450,000 in London and £250,000 everywhere else in the UK.
How much can I save?
There is a minimum government contribution of £400, so you will have to build up at least £1,600 in your account yourself. When you first open an account you will be able to put in a lump sum of up to £1,000, then you can pay in up to £200 a month.
To get the maximum bonus from the government you will need to save for five years if you can put in £200 a month; if you can afford to start with a £1,000 lump sum you will qualify for the full amount in just over four-and-a-half years.
When do I have to buy my home?
The scheme will be open to new accountholders for four years from the autumn, the chancellor said, but once you have opened an account you can keep it until you are ready to buy (assuming that the scheme is not scrapped later on).
The budget documents suggest that the government expects it to take people a while to save enough to be in a position to buy – spending on the policy is forecast to be £45m in the current tax year, increasing to £835m in 2019-20.
While your account is open you can withdraw money but you will only get the bonus when you come to buy a home.
Will this help me buy a home?
However, you will still have to show mortgage lenders that you can afford the monthly repayments on a loan, which will be difficult if you are recently self-employed or have large outgoings, like childcare costs.
Will it push up house prices?
Lucian Cook of property firm Savills says the £12,000 limit on savings should prevent a surge in house prices and means the scheme is “more likely to help get buyers over the deposit hurdle in the lower-value, lower-growth markets of the Midlands and the north than say London and the south-east, where significant constraints remain”.
However, Adrian Gill, director of estate agents Your Move and Reeds Rains, warns the move will increase demand for homes without boosting supply. “It’s all well and good getting first-time buyer finances in shape, but it will amount to hollow words if there are no properties available for them to buy, and if competition continues to push house prices higher and higher.”
Is it a good idea?
Opinion is divided. Mark Harris, chief executive of mortgage broker SPF Private Clients, says it’s “a great idea”. He adds: ‘It encourages people to save, which is a far better way of tackling the issue of high house prices than increasing loan-to-values.”
However, David Orr, chief executive at the National Housing Federation, which represents housing associations, described it as “another short-term initiative for first-time buyers”. He says: “The help-to-buy Isa will help people scrape together deposits but it fails to address the root cause of unaffordability – the chronic undersupply of homes, which has driven up prices.”
Where will I get the Isa?
The Treasury says they will be run by banks and building societies and that savers will be able to move between Isas to make sure they are getting the best deal.
Can I have a help-to-buy Isa and a cash Isa?
No, not another cash Isa that you pay into in the same tax year. However, now that savings tax has been overhauled, you can earn up to £1,000 interest tax-free outside an Isa if you are a basic-rate taxpayer and up to £500 if you are a higher-rate taxpayer, so you probably do not need another cash Isa.