Help to Buy limps towards a close – hobbled by price restrictions

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on the publication of the Help to Buy ISA data and the equity loan data, which shows Help to Buy limps towards a close – hobbled by price restrictions.

Key points from publications:
    • By December 2022  – seven years after launch –  Help to Buy ISAs had been used to buy 547,187 homes. The scheme closed to new entrants in November 2019, and the numbers have been dropping as the scheme winds down.
    • The average value of a property bought through the scheme is £177,217, compared to an average first-time buyer property price of £245,958 and an average property price of £294,329.
    • The average buyer using the scheme is 28, while the average first time buyer is 30.
    • The Help to Buy (equity loan) scheme closed to new applicants in October last year .
    • Between October and the end of December, 8,227 properties were bought with a Help to Buy equity loan – down 8% from the same period a year earlier. This takes the total to 383,903
Sarah Coles says:

“The Help to Buy schemes are limping towards their final demise, and the ISA in particular has been increasingly hobbled by the limits on the properties that can be bought using the scheme.

“The government needs to learn from this experience, and protect the Lifetime ISA from the same fate.

“The Help to Buy ISA has been closed to new entrants for three and a half years – although contributions can be made for another six. But already first-time buyers are hamstrung by the limit on property values which can be bought through the scheme.

“Outside London you can only buy a property worth up to £250,000 with a Help to Buy ISA, and within London you can only spend up to £450,000. Neither limit has moved an inch since they were first introduced in December 2015.

“Since then, house prices have risen over 40%, the average first-time-buyer property is bumping up against the £250,000 limit, and the average property price has raced way ahead. It means that people have either had to settle for a cheaper home or forgo their bonus.

“Although the limit on properties bought using the Lifetime ISA limit is much higher – at £450,000 nationwide – 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, 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 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.”

 

Kindly shared by Hargreaves Lansdown

Main article photo courtesy of Pixabay