Debra Rose, a partner in our property department, takes a look at Help to Buy ISA’s, which launch in December and are designed to help first-time buyers save.
There has been much comment in the news recently about the inability of young people to get on the housing ladder. A report by housing charity Shelter earlier this year found only 43 potentially suitable homes in London currently available that would be ‘affordable’ for the typical young family buying their first property. Affordability was calculated using an estimate of the average earnings of families in the area and the amount they could borrow based on that income. In a further blow to young peoples’ prospects, accountancy firm PwC recently predicted that more than half of the under-40’s would be renting homes from private landlords in the UK in 10 years’ time.
In response, the government have announced an expansion to their Help to Buy Scheme with the introduction of the Help to Buy ISA.. Designed to help first time buyers save for their deposits, the ISA gives people the opportunity to access up to £3,000 of government funds towards their first home. The scheme is due to start in December 2015 and most of the major banks and building societies have signed up to the scheme.
The government will contribute £50 for every £200 saved. You can make the initial £1000 deposit when you open the account in addition to making monthly savings. You can save no more than £200 per month, although there is no minimum monthly deposit.
Once savers are ready to purchase their first home, they withdraw their savings and receive their government bonus equating to 25% of the total balance. The bonus is capped at £3,000 so there will be no bonus awarded on any savings of more than £12,000. The bonus is paid in the form of a voucher, which will be sent directly to your mortgage lender.
The bonus can only be used towards a first home in the UK with a purchase value up to £450,000 in London and up to £250,000 in the rest of the UK. The Help to Buy ISA can be used to save towards both new builds and already occupied houses.
The accounts are per person rather than per home, so couples or friends buying together can each receive a bonus. Thus a couple each saving £200 per month to a total of £12,000 each will each receive a £3,000 bonus – a total deposit of £30,000.
Accounts will be available to first time buyers aged 16 and over, and new accounts will be available to the public for four years after they launch in December – but there is no limit on how long you can continue to save once you’ve opened an account.
Help to buy ISAs will be available through banks and building societies, which will each set their own interest rates as they do with regular cash ISAs. This means savers will earn interest on their savings as well as getting their bonus.
Savers will not be restricted to using the governments Help to Buy mortgages, but can apply for any residential mortgage deal they like.
It remains to be seen whether the Introduction of the Help to Buy ISA will have any significant effect, but it will undoubtedly help a few young people own their own homes.
This article was originally published in the Wanstead Village Directory.