HELPING FIRST TIME BUYERS

TODAY’S BLOG

HELPING FIRST TIME BUYERS

You may be aware that buying your first home is and has been fairly difficult, largely due to the inflated price of property and incomes that simply do not keep up at the same rate. Successive Governments have attempted to address this problem with initiatives, including adjusting stamp duty, capital gains tax and providing a type of ISA which has +25% tax relief as a bonus if used for a deposit on a property. This began with the Help to Buy ISA in 2015 to be replaced by the Lifetime ISA or LISA (the tinkering seems endless and neurotic). The Help to Buy ISA is only available to those who opened one before December 2019 and will cease completely from December 2029.

I won’t go into all the detail here about the differences and appropriateness, suffice to say that a LISA has a £4,000 tax year contribution cap of the standard £20,000 allowance.

HMRC’s latest quarterly statistics on Help to Buy ISAs have been released. These cover the period from 1 December 2015 to 31 December 2021.

The statistics show that since the launch of the Help to Buy ISA, 480,494 property completions have been supported by the scheme and 630,264 bonuses have been paid through the scheme (totalling £714 million) with an average bonus value of £1,132. It may not surprise you to learn that 2021 saw the highest number of purchases to date.

The table below shows the number of property completions supported by the scheme broken down by property value:

The highest number of property completions with the support of the scheme is in the North West (13%) and Yorkshire and the Humber (10%), with the lowest numbers in the North East, Northern Ireland and Wales. London buyers accounted for 8% of all completions but with a much higher average price of £330,661 – double the price paid in most of the UK.

The statistics also show:

  • The mean value of a property purchased through the scheme is £175,849 compared to an average first-time buyer house price of £228,627 and a national average house price of £274,712.
  • 65.3% of first-time buyers who have been supported by the scheme were between the ages of 25 to 34.
  • The median age of a first-time buyer in the scheme is 28 compared to a national first-time buyer median age of 30.

It would be unfair to suggest that the scheme isn’t working that well, but in practice taxpayer money is funding private property purchases, which are predominantly helping those living in areas of already cheap (by comparison) homes. Personally I am not convinced by the system. It does very little to really control the problem of soaring property prices, if anything it may add to it …

Dominic Thomas
Solomons IFA

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 info@solomonsifa.co.uk

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The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk 
Call – 020 8542 8084

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

Email – info@solomonsifa.co.uk    Call – 020 8542 8084

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

HELPING FIRST TIME BUYERS2023-12-01T12:12:46+00:00

Help to Buy ISA… well, not that much help..

Help to Buy ISA…well not that much help

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.

Dominic Thomas
Solomons IFA

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 info@solomonsifa.co.uk

Help to Buy ISA… well, not that much help..2023-12-01T12:19:09+00:00
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