Half a million homes bought with Help to Buy ISA – but first-time buyer boom may be slowing
Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on Help to Buy ISA quarterly statistics to March 2022, showing half a million homes bought with one, but first-time buyer boom may be slowing.
Key points from publication:
- By March – six and a quarter years after launch – Help to Buy ISAs had been used to buy 497,940 homes.
- Purchases using Help to Buy ISAs have slowed in 2022. Excluding two months at the start of the pandemic, January was the slowest month for five years.
Sarah Coles says:
“The first-time buyer boom has lifted sales using Help-to-Buy ISAs to almost half a million, but there are signs that runaway prices are deadening the boom in this corner of the market.
“The ISA has been a useful leg up for hundreds of thousands of buyers, but in recent months it has been in decline. Purchases using the Help to Buy ISA slowed in early 2022, while the wider market was still roaring away. Excluding the two months during the pandemic, when the market was all-but closed (April and May 2020), January saw fewer purchases using a Help to Buy ISA than any other time for five years. The last time sales using the Help to Buy ISA were so low was back in the early months after the launch.
“It’s a massive contrast to 2021, which was a record year for first time buyers, according to figures from both Barclays and Halifax, with twice as many buyers as 2009. The fall in Help to Buy ISA use reflects a dropping back in these numbers. The Bank of England statistics show that first time buyers have fallen back from making up 25% of the amount lent out in new mortgages in spring last year to 21% in the first three months of 2022.
“Runaway house prices and sky-high rents have made it more difficult for first timers to raise a deposit, and now rising interest rates are making monthly payments less affordable too. This was always going to put the brakes on the first-time market eventually, and this may well be a sign that it has started to slow.
“One of the problems is the limit on the Help to Buy ISA scheme, which only allows people to save £200 a month after the first month, so although it offers a maximum bonus of £3,000 – it would take 55 months of saving the maximum allowed in order to get to this point. In reality most people save half as much, so get £1,149 to help with a purchase, which is a useful additional boost, but right now it isn’t a game-changer.
“Then there’s the fact that you can only buy a property worth up to £250,000 outside London using a Help to Buy ISA (£450,000 in London), which means people using the scheme can no longer afford an average property. This may also be playing a part in limiting demand.”
Should you switch?
“If you have a Help to Buy ISA, one option is to transfer to a Lifetime ISA. That way you can 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. It also allows you to buy a property worth up to £450,000 anywhere in the country.
“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, but you’ll need to calculate the best approach for your circumstances.”
Kindly shared by Hargreaves Lansdown
Main article photo courtesy of Pixabay
