Average house prices eclipse Help to Buy ISA limits: LISA may be nicer

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on the publication of the Help to Buy loan and ISA data, which shows average house prices eclipse Help to Buy ISA limits: LISA may be nicer.

Key points from publications:
  • December figures show that the average price of a property bought through the Help to Buy ISA scheme was £175,849, compared to an average first-time buyer price of £228,627 and a national average of £274,712.
  • Since then, the national average property price has risen to a record high in February of £276,755, and the average London property has risen to £530,000.
  • It means average prices have risen by over a third (35%) since the Help to Buy ISA was introduced, when the average property cost £204,920.
  • If you want to use a Help to Buy ISA to buy a property, you can’t buy anything worth more than £450,000 within London or £250,000 elsewhere.
Sarah Coles says:

“Soaring house prices over the last couple of years have made a mockery of the Help to Buy ISA limits. You can’t buy an average property using a Help to Buy ISA, and you can barely buy the average home for a first-time buyer. House prices have risen by a third since this type of ISA was introduced in December 2015, but the limits haven’t shifted at all. It means that for anyone approaching the limits of the scheme, the LISA may be nicer.

“In London the difference is particularly striking, because the average home costs £80,000 more than the scheme’s £45,000 limit, but even elsewhere in the UK, the average property costs almost 10% more than the scheme limit of £250,000. It means those who are relying on the government top-up to afford a property could get to the point of buying and realise they’ll breach the limit – so can’t get the bonus after all.

“The government needs to reconsider the limits on the Help to Buy LISA, and the Lifetime ISA. They need to be linked to house price inflation, so buyers have the security of knowing that however long they save for a property, and however house prices move in the interim, they won’t be priced out of their bonus.”

LISA may be nicer:

“If you have a Help to Buy ISA, you’re based outside London, and you want to buy a property costing more than £250,000, one option is to transfer to a Lifetime ISA. That way you can take advantage of the nationwide £450,000 allowance. You can also put more into a LISA – £4,000 a year – and the government will immediately top it up by 25% – so you could get £1,000 a year from the government to help you onto the property ladder. 

“However, you need to follow the rules. It means you must be aged 18-39 (unless you already have a LISA) and you need to wait at least a year between the first money going into your LISA and the day you buy.

“You also need to be aware that you’ll pay a penalty if you don’t end up using it for a first house purchase, or holding it until retirement. If you’re concerned you may need to switch, it’s worth thinking about it sooner rather than later. You don’t necessarily have to switch all the money over immediately, just funding it with £1 will start the clock ticking.

“You also need to understand the mechanics of the switch. If you have more than £4,000 in your Help to Buy ISA, you can only switch £4,000 in each tax year. Money that’s switched will eat into your allowance for the current year, so if you use it all up with a switch, you may need to put cash you’re saving for a deposit somewhere else until next April.

“It might still be worth it, because a 25% bonus on £4,000 is still better than a 0% bonus on everything in your Help to Buy ISA. However, you’ll need to calculate the best approach for your circumstances.”

Other Help to Buy scheme statistics:
  • The average bonus value of a Help to Buy ISA is £1,132 and £714 million has been paid in bonuses within the scheme.
  • By December, Help to Buy ISAs had been used to buy 480,494 homes.
  • The average age of a first-time buyer using a Help to Buy ISA is 28 compared to an overall first-time buyer average age of 30.
  • Between October and the end of December 2021, 8,913 homes were bought with the Help to Buy equity loan, up 22% from the previous quarter. The 12-month average has been falling since June 2021, after the scheme was limited to first time buyers and new regional price caps were introduced.
  • By September 2021, Help to Buy equity loans had been used to buy355,634 properties since the scheme was launched in 2013 – a total of £22 billion in loans.


Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay