Help to Buy hits record low as equity loan scheme limps home

Sarah Coles, head of personal finance at Hargreaves Lansdown, comments on the publication of the Help to Buy ISA and Equity Loan data, showing Help to Buy hits record low as equity loan scheme limps home.

Key points from publications:
    • So far in 2023, Help to Buy ISAs have been used to buy 11,040 properties. If purchases continue at this rate, 2023 will be the lowest year for sales using the scheme since it started in 2015.
    • In the three months to March, 3,202 properties were bought with a Help to Buy equity loan – down 41% from the same period a year earlier. March 2023 saw the lowest number of completions since the scheme launched in 2013.
    • The Help to Buy ISA scheme closed to new entrants in November 2019. The Help to Buy (equity loan) scheme closed to new applicants in October last year. Final transactions were due to be completed by the end of March – but homebuilders can push this to the end of May.
    • The average value of a property bought through the Help to Buy ISA is £177,372, compared to an average first-time buyer property price of £236,682 and an average property price of £285,009.
Sarah Coles says:

“Help to Buy is going out with a whimper, as the schemes fail to deliver for first-time buyers.

“The government needs to protect the Lifetime ISA from the same fate.

“Both Help to Buy schemes are on their way out.

“It was officially the final month for completions using the Help to Buy equity loan – although some will be pushed as far as May.

“It’s also more than three and a half years since the Help to Buy ISA closed to new entrants and, although bonuses can be claimed until 2030, it has been allowed to wither on the vine.

“The limit on the property value is a major sticking point.

“Outside London, you can only buy a property worth up to £250,000 with a Help to Buy ISA, and the average first-time property is bumping up against the limit.

“The savings limits haven’t changed either and, after the first month, are limited to £200 a month – with the government bonus capped at £3,000.

“It means this will help you get to a deposit of £15,000 which, assuming you’re aiming for a 10% deposit, is around £8,500 short of what you need to buy the average first-time property.

“Although the limit on properties bought using the Lifetime ISA limit is much higher, at £450,000 nationwide, and the savings limit is significantly larger – at £4,000 a year – unless the government rethinks how these limits are set, over time, it risks a similar fate.

“One sensible option would be to link them to house price inflation, so buyers have the security of knowing that, however long they save for, and however house prices move in the interim, they will be protected.

“The government also needs to reconsider the fact that LISA savers have to pay a 25% penalty if they buy a property worth more than £450,000.

“This doesn’t just remove the government bonus, but a chunk of their own savings too.

“It’s ludicrous that people should be penalised for trying to do the right thing and being hit by forces out of their control.”

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, you may be able to transfer to a Lifetime ISA.

“However, 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.

“Also, bear in mind that you’ll pay a penalty if you don’t end up using it for a first house purchase, or holding it until retirement.

“The mechanics of the switch are worth understanding too.

“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 too.

“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