Help-to-Buy ISAs: Do They Really Help First-Time Buyers?
Getting on the property ladder can be tough and it may be even harder in the future. Most first-time buyers need to have a deposit of at least 10% in order to secure the house they want, so many have no choice but to keep renting.
In order to help those who may struggle to save for a deposit, the Government set up a Help-to-Buy ISA scheme, where a bonus is given to those taking part.
However, by offering a bonus scheme where individuals can only receive a maximum of £3,000, is the Government really doing enough to help people, outside of London, who typically save for a deposit of at least £25,000 ?
How do Help-to-Buy ISAs Work?
Help-to-Buy ISAs were set up on 1st December 2015, and their primary aim is to help first-time buyers save for large deposits. With house prices rising dramatically, many young people struggle to save up for even small deposits as low as 5% or 10%.
First-time buyers can set up an ISA with a deposit of £1,000, and they can pay in up to £200 for every month that they keep the ISA open. The ISA can be kept for up to five years, and when it is closed the Government will provide a 25% bonus, up to a maximum of £3,000.
The money saved in the ISA must be spent on a house deposit, and individuals with such an ISA will receive less money if they contribute less on a monthly basis, they keep the ISA open for a shorter period of time, or they withdraw money from the account. First-time buyers cannot have another ISA while they contribute to a Help-to-Buy ISA.
Whilst the scheme offers an opportunity for young people to save money, it seems that the onus is still placed on the buyers themselves and any parental support they may receive, rather than any significant help from the Government.
For example, if a first-time buyer keeps their ISA for two years and pays in the maximum amount of £200 per month, they will receive a bonus from the Government of £2,400, which equates to just 1% of a £240,000 house. Furthermore, the scheme only allows buyers to purchase homes that are priced under £250,000 outside of London, so many feel that the scheme does relatively little to contribute to the cost of a home in Britain.
The ISA Issue
While many young people are frustrated by the low bonus offered by the Government, most feel that Help-to-Buy ISAs are the only viable means of saving up for a home deposit today. This is because regular ISAs have become notorious for accumulating little to no interest year on year.
Currently, the highest easy-access ISA rate stands at just 1.41%, compared to 3.15% offered just five years ago. Where ordinary ISAs were once seen as the main way to save money, they are now typically seen as unhelpful for most savers.
The Bank of Mum & Dad
Receiving financial support from parents or relatives is often seen as a must for first-time buyers today. Many parents are concerned that their children will not get on the property ladder and do their best to help with expensive deposits if they can. Without parental support, many young people would not be able to buy their first home until they inherit money in later life.
Unfortunately, many first-time buyers cannot receive additional support from their family members. This means that, even if first-time buyers contribute as much as they can to the Help-to-Buy scheme, they are unlikely to gather enough money for a house deposit. Consequently, many young people have little opportunity to buy homes, and continue to rent for many years instead.
Financing Your Property
As house prices rocket, it is clear that prospective first-time buyers will struggle to climb the property ladder. If you would like to understand more about alternative funding options for your property, read our guide to bridging loans and finance your new property today.