Is the Property Market too hot for Help to Buy Isa’s?

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Is the Property Market too hot for Help to Buy Isa’s?

Is the property market too hot for Help to Buy Isa’s?

Recently, I have been speaking to several First Time Buyer clients who save their deposit in a Help to Buy ISA.    

If you don’t know, Help to Buy Isa’s are savings accounts that allow first-time buyers to save for a mortgage deposit and then claim a government bonus when they buy their first home. 

For every £200 you save, the government will pay you a £50 bonus towards the purchase price of a property. This means the government will effectively give you a 25% top-up on savings of up to £12,000, so you could earn a maximum tax-free bonus of £3,000.

You can no longer open a new Help to Buy Isa, but existing account-holders can continue to save towards buying their first home and earn a bonus from the government.

The reason that has prompted me to write about this is the following fact:

UK average house prices rose to a record £264,000 in August 2021. This is £25,000 higher than in 2020. (Source: ONS data)

This is good news for property owners, not so good news for First Time Buyers using a Help to Buy Isa towards the purchase of their first property.

Help to Buy ISA can only be used on properties up to £250,000 outside London.

This means savers are unable to use their Help to Buy Isa savings and the government bonus towards the property purchase if the property is over £250,000.

It might be time for savers to consider switching to an alternative savings option, a Lifetime ISA.

With the Help to Buy price cap set at £250,000 for properties outside London, the first time buyer market may be presented with a problem. With the recently introduced government-backed, 95% mortgages are making higher house prices more affordable to first-time buyers, however, they then hit the hurdle of having a limited choice of properties of £250,000 and under!

The Lifetime ISA allows soon-to-be homeowners to purchase a property up to the value of £450,000 wherever the property is located in the UK.  The Lifetime ISA also provides the option to save more each year and so benefit from a bigger potential Government bonus. 

So, if you currently have a Help to Buy ISA and are concerned about being limited to a property with the maximum value of £250,000, for some it might make sense to make the switch from Help to Buy ISA to a Lifetime ISA, but there are two major drawbacks to be aware of:

  1. Once you have transferred to the Lifetime Isa, you must wait 12 months from the date of your first payment, before you can use your savings and the bonus for a house purchase.  
  2. You can also only transfer £4,000 a year, so if you have been saving for a long time, and have more than this to transfer in, this may cause a delay to your plans to purchase.

Important Notes:

If you decide to use the funds for something other than to purchase your first home, you could face penalties to withdraw your funds.

You must be under 40. Even if you opened your Help to Buy ISA before you turned 40, the maximum age to transfer the funds in your Lifetime Isa is age 40.

If you are a first-time buyer and have been saving ready to buy your first property, please think very carefully about the savings account you have been using and if it meets your requirements.

If you are a little while off buying your first home, now could be the best time to make any changes to your savings account to ensure it is working for you.

Read our blog here to learn more about the comparison between HTB and Lifetime ISA: Free Money For First Time Buyers.

If you are ready to buy and are not sure if you have the right type of savings account for the property you want to purchase, please get in touch and the team at The Mortgage Girl will be happy to offer advice on the deposit you have available.

If you liked this post Is the Property Market too hot for Help to Buy Isa’s? and looking for more great mortgage tips, news & advice, check out our last blog post Are long term fixed rates the future?

Call 01752 749655 or CONTACT US for free impartial mortgage advice to help you find the best deal.