Runaway house prices risk overtaking Help to Buy ISA limits

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, comments on the ONS Help to Buy loan data and quarterly statistics showing runaway house prices risk overtaking Help to Buy ISA limits.

Key points from publications:
  • September figures show that the average price of a property bought through the Help to Buy ISA scheme was £175,680, compared to an average first-time buyer house price of £225,607 and a national average house price of £269,945.
  • Since then, the national average has risen to a record high in December of £274,712 – up £27,000 in a year, and the average first time property costs £228,627.
  • If you want to use a Help to Buy ISA to buy a property, you cannot buy anything worth more than £450,000 within London or £250,000 elsewhere.
Sarah Coles says:

“Runaway house prices risk overtaking the Help to Buy ISA limits. At times like this, first-time buyers need government schemes more than ever, so it’s a real kick in the teeth that many will get to the point of buying a property and discover they can’t take advantage of the bonus.

“When the Help to Buy ISA was launched in December 2015, the average price paid by a first-time buyer was less than £175,000, so the limit of £250,000 (and £450,000 in London) gave buyers plenty of scope to find the home they wanted.

“In the seven years since, the average first-time buyer price has risen more than a quarter to over £225,000 and the limits haven’t moved an inch. As a result, we’re getting perilously close to the day when nobody using the scheme can afford to buy an average starter home. It means that people who started a Help to Buy ISA in good faith back in 2015 could get to the point of purchase and realise they won’t get the bonus they were expecting.

“The government needs to reconsider the limits on the Help to Buy LISA, and the Lifetime ISA. Setting a fixed limit and then walking away to leave buyers to wrestle with rising prices isn’t good enough. Overall limits need to be linked to house price inflation, so buyers know they won’t be getting into a scheme they could be forced out of by a hot property market.

“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), you can’t switch more than £4,000 a year into the LISA, and you need to wait at least a year between the first money going into your LISA and the day you buy. If you’re concerned you may need to switch, it’s worth thinking about it sooner rather than later, to start the clock ticking on the LISA and to take advantage of this year’s allowance.”

Other Help to Buy scheme statistics:
  • The average bonus value of a Help to Buy ISA is £1,115 and £674 million has been paid in bonuses within the scheme.
  • By September, Help to Buy ISAs had been used to buy 460,567 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.
  • By September 2021, Help to Buy equity loans had been used to buy346,656 properties since the scheme was launched in 2013 – a total of £21.4 billion.

 

Kindly shared by Hargreaves Lansdown

Main photo courtesy of Pixabay