You may have heard of the Help to Buy ISAs. When this was announced by the then master of goalpost manoeuvers, Mr George Osborne, you would be forgiven for thinking that this was an innovative scheme to help savers get a bigger deposit for a house purchase. The Government will add 25% to whatever you save…. Well maybe not.. as ever, rarely do Governments make life easy, indeed one is often left to wonder if Government agenda is not precisely the opposite. So, let’s spell out a few of the issues. For the sake of simplicity, I will call the right to buy ISA “the plan” which will not help my search engine optimization, but will hopefully read a little better.
Maximum and Minimum
You can only save £200 a month into “the plan” with an initial deposit of £1000.The maximum that can be in the plan (from you is £12,000 – the minimum is £1,600). So the maximum £12,000 would get £3,000 (25%) from the Government, yes its better than nothing, but actually not that much help for a deposit. You have to be 16 or over for an account.
So then there is that mortgage…
Whilst it is possible to get a mortgage with a very small deposit (5%) the prevailing requirement is generally 15%-25% deposit. Of course this means being able to justify and afford the mortgage for the balance. So if the plan is 5% of the purchase price, that suggests a property valued at £300,000 and mortgage of £285,000… which in turn probably means an income of over £80,000. We don’t arrange mortgages, but generally borrowers can borrow up to about 3.5x their income. If you have found a property for £100,000 then of course this will be more useful, but one can only assume that the property is at least 100 miles from London.
The Hard Graft of Saving
As the plan is really a monthly saving scheme, that’s a total of 55 months or 4 and a half years of solid saving…. In the meantime, property prices are probably rising, at least in-line with inflation. Oh… just remind me how long is the typical Government lifetime? How time flies.. and policies change.
The Housing Problem
Another clause being that Government hand out only applies if the purchase price is up to £250,000 or £450,000 in London…. In which case for Londoners, clearly this would be just over a 3% deposit, so you will need other resources. The property must be in the UK (do not ask me what that would mean should either Scotland or Wales leave the UK). Naturally the plan cannot be used to purchase a second property, so if Mum and Dad have put your name of the deeds somewhere else… well, it’s not for you.
Meanwhile, as the Help to Buy ISA is really a Cash ISA, the savings earn interest, which today is about nothing. OK you can get some better deals, but not much better.
Snakes and Property Ladders
The Plan cannot be used for anything other than a deposit, not stamp duty, fees etc. It cannot form part of the deposit provided at Exchange of Contracts either…. which is quite daft! It must also be closed before you buy, which means obtaining a statement from the Bank to confirm that the account is closed (which may be easy in theory but hard in the stressful throws of purchasing a first home.. whilst the pressures mount from those higher in the chain.. It’s actually the conveyancing solicitor that claims the Government hand out for you between the Exchange and Completion… (I’m guessing a fee would apply to claim it)… what could possibly go wrong? (property falling through perhaps?).
Still, there’s no place like home….
So is it worth it? Launched nearly a year ago (December 2015) over 22,000 people have used the proceeds to buy a property, which presumably means that they had at the very most 10 months of £200 and £1000 initial deposit (£2000 in all) so a £500 help to buy. OK, ok… better than nothing, but is this really solving the housing crisis or simply providing a bit more cash to meet the inflated property prices? I think you can probably guess what I think.
However, this is money for nothing (well, there are some strings). In practice, perhaps try to use the account, fill it up to the maximum then forget about it in the hope that the offer remains valid for years to come. It does form part of your annual ISA allowance, but in practice only £2400 for most people, meaning that there is still a lot of ISA allowance left. If you move abroad or never end up buying a home, then you can easily get your money back, it simply will not be worth much more than you put in, due to poor rates of interest. Much like the Wizard of Oz, there are no magical solutions to resolve the housing crisis but if you make the effort and reflect on your own resourcefulness, its amazing what can be achieved… and you will have a bit more cash to play around with.
You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email firstname.lastname@example.org
Help to Buy ISA… well, not that much help..Dominic2017-01-06T14:39:14+00:00