In a bid to encourage and help first time buyers, the savings scheme Help to Buy was launched by the Treasury last year.
The Help to Buy Individual Savings Account (HTB ISA) was introduced last December to help potential house buyers to save for a home. It allowed first time buyers to place their deposit in a tax-free savings account and get a 25% bonus – to a maximum of £3,000 – when they buy their home. That bonus is only available if the purchase price does not exceed a maximum purchase cap of £250,000, or £450,000 in London.
A year on, with little change to the property market, but much volatility now and in future, an independent BBC investigation has found that many properties are still too expensive to be covered under the terms of the HTB ISA. The asking price of the majority of properties was in excess of the HTB ISA cap.
The BBC produced a lengthy report of their findings.The key points regarding two bedroom starter homes firstly indicated a (traditional) North/South divide. Average asking prices exceed the cap of £250,000 in 67% of areas in the South East, 65% in London, 61% in the South and 53% in the East. By comparison, the cap was exceeded in less than 5% of areas in the North East, the Midlands, Yorkshire and Lincolnshire. Ferryhill in County Durham saw the cheapest average asking price, at just over £45,000, with East Molesey in Surrey seeing the highest prices, at an average of £551,025.
London (always different and more expensive to the rest of the nation), an average two-bedroom flat exceeded the cap in two thirds of boroughs. One-bedroom flats exceeded the £450,000 cap in a third of boroughs, with 10% of average three-bedroom homes in London being below the cap. By contrast, outside London the highest average price for a one-bedroom flat was in Berkhamsted in Hertfordshire, at £408,000. Overall, two-bedroom homes exceed the cap in 28% of areas nationwide outside London.
It is quite clear that the HTB ISA scheme is not helping as many young and first time buyers get on the property market as hoped. As prices rise, the cap on the ISA has not – making buying a house still unaffordable for many, despite government help. With more increasingly stuck in a rent trap, despite Help To Buy and other schemes, the affordable housing issue still continues.
Campbell Robb, Chief Executive of housing charity Shelter, said recently of Help To Buy that “soaring housing costs have left millions of people stuck in a rent trap and struggling to save anything towards a home of their own… The Help to Buy ISA only helps the lucky few who are better off, or able to live with their parents while they save for a deposit. For the vast majority of renters who want to move forward in life and put down roots, this scheme brings them no closer to that dream… If the government genuinely wants to help the nation’s renters get a foot on the housing ladder, it needs to look beyond quick-fix schemes, and invest in homes that people on ordinary incomes can actually afford.”
However, all is not lost regarding the HTB ISA. Martin Lewis, of MoneySavingExpert.com, has advised that savers should not be put off opening a HTB ISA; “it is a cash giveaway from the taxpayer… Even if you don’t end up using it to buy a house, you still have savings with a very favourable rate of interest.” Mr Lewis added that from 2017 the government was launching its Lifetime ISA. This ISA will have an upper limit on house purchases of up to £450,000. Money from a regular HTB ISA can be transferred into a Lifetime USA, making a HTB ISA an attractive savings instrument.