The Chancellor has unveiled a new Help to Buy ISA as part of the new budget, meaning first time buyers will now be offered up to £3000 each towards their deposit. This should help those looking to jump onto the property ladder, but struggling with a deposit, secure their first home.
How Does it Work?
The new savings account will see the government contributing £50 to every £200 that savers put away towards a house deposit. This means that if someone saves £12,000 towards a house deposit, the government will top it up by £3,000, leaving them with a £15,000 deposit.
The bonus is given to each person, not each house, so together a couple could get £6,000 from the government towards the purchase of a new house. On top of this, the ISAs will also pay interest on the amount being saved.
How Much Can Be Saved?
The minimum that the government will contribute is £400, which means at least £1,600 will have to be saved up and put in the account first. When the account is initially opened, a lump sum of £1000 can be added to it, and up to £200 a month can be put in the account after that.
To make the most out of this scheme, anyone looking to buy their first house would need to save for five years, start with £1000 in the account, and add exactly £200 a month. After four and a half years they would then quality for the full amount to be added by the government.
Who Will Qualify?
Anyone over the age of 16 who has never owned their own home before will be eligible to set up a savings account. The price of a house that can be bought with this fund is capped at £450,000 in London and £250,000 across the rest of the UK.
The money saved can only be put towards a first home to live in, it cannot be used to fund a buy-to-let property, even if the person buying doesn’t own any other houses. The money from the government is only released once the purchase of the property has been finalised.
Is There a Time Limit?
George Osborne said the scheme will be open to new account holders for the next four years, but once the account is open there is no limit on how long they can save up for. The accounts will become available in the autumn through banks and building societies, and there is no minimum monthly deposit.
The budget documents do say that the government expect people to take a while to save up enough to be able to buy a house, and the spending on the policy is forecast to be £835m in the 2019-20 tax year.
Pros and Cons
Opinion is divided on whether the Help to Buy ISA is a good thing. Some say that it will most likely just push house prices even further up, as it will increase the demand for homes without also increasing the supply.
Others say that it will help encourage buyers to save up and get them over the deposit hurdle in many parts of the country. David Orr, chief executive at the National Housing Federation, said it is “another short-term initiative for first-time buyers. The help-to-buy Isa will help people scrape together deposits but it fails to address the root cause of unaffordability – the chronic undersupply of homes, which has driven up prices.”