Not so helpful ‘Help to Buy ISA’ DELAYS 45,000 first-time buyers

Posted in: Research

  • 25% of first-time buyers claim the Help to Buy ISA is misleading or unhelpful
  • Since 2015 the Help to Buy ISA has delayed an estimated 45,000 property sales because it cannot be used for paying the deposit and many buyers have realised too late
  • One in six (15%) first time buyers ended up having to borrow money from friends and family to cover the deposit gap
  • OneFamily urges government to raise the profile of the Lifetime ISA, as it is the long-term replacement for the Help to Buy ISA and can be used to pay deposits

One in four (25%) first-time buyers claim the Help to Buy ISA is misleading and unhelpful, as the full amount cannot be used towards a deposit for a first home.

According to OneFamily, since its introduction more than 1.2 million[i] savers have opened a Help to Buy ISA, a government-supported savings scheme designed to help people save for their first home, but only 196,000[ii] have actually used it to buy a home.

The major flaw with a Help to Buy ISA is that savings cannot be used for a property deposit as funds are released post property sale completion. As a result, one in six (15%) savers said they were not able to use the money in their Help to Buy ISA account in the way they expected (i.e. towards a deposit).

This has delayed a quarter (23%) of purchases using the Help to Buy ISA – an estimated 45,000[iii] purchases in total – as first-time buyers realise they have a major hole in their finances and have had to attempt to raise a deposit through other means, like borrowing from friends and family.[iv]

But the research reveals more unsuspecting first-time buyers are expected to fall victim to the same catch. Nearly seven in 10 (69%) of those planning to buy their first home in the next three years mistakenly believe they can put the cash saved in a Help to Buy ISA towards the deposit. This means that around 700,000[v] savers could be caught short by up to £3,000[vi] when they are ready to buy and may have to delay their property purchase as a result.

Understanding of the Help to Buy ISA is stubbornly low. Among all potential first-time buyers, two in five (41%) wrongly believe you can use the Help to Buy ISA on any mortgage – yet it can only be used to buy a home worth up to £250,000 (or under £450,000 in London).  Plus six in 10 (61%) don’t know whether the Help To Buy ISA or Lifetime ISA allows them to save more.[vii]

For those saving for a first home, the Lifetime ISA – introduced in 2017– is already helping first-time buyers get onto the property ladder as it can be used for a property deposit. Introduced to replace the Help to Buy ISA, the scheme helps those who want to buy their first property with a 25% government boost of up to £1,000 a year. Due to its superior features government bonus payments on the Lifetime ISA already exceed those of the Help to Buy ISA.[viii]

Nici Audhlam-Gardiner, Managing Director of Lifetime ISAs at OneFamily, commented:

“If you are hoping to buy your first property then you need to avoid the Help to Buy ISA if you are planning to use the bonus towards your initial deposit. The average deposit for a first-time buyer is now more than £30,000 so it’s harder than ever to save up for a home, and for many people is by far the biggest hurdle. The Lifetime ISA, introduced last year, is far better for first-time buyers as not only do savers make more in government bonuses, they can actually use it towards the deposit.

“We support the closure of the Help to Buy ISA next year as it is not fit for purpose and is actually delaying property sales, however our research shows that the majority (55%) of first-time buyers remain unaware of the Lifetime ISA. We are urging the government to reiterate its closure plans and further support the Lifetime ISA and help the thousands of people who are desperate to get on the ladder.”

For more information on the OneFamily Lifetime ISA visit:

https://www.onefamily.com/lifetime-isa/

[i] Gov.uk (August 2018) More than 420,000 people get on the housing ladder with Help To Buy

[ii] HM Treasury (August 2018) Help to Buy: ISA scheme Quarterly Statistics

[iii] 196,000 purchases have been made using the Help to Buy ISA and 23% said their purchase was delayed because they couldn’t use their savings for the deposit.  Therefore 45,080 purchases have been delayed

[iv] Research commissioned by OneFamily reveals that 15% of first-time buyers had to borrow money from family or friends because they could not use the money they saved through the Help to Buy ISA for their deposit

[v] 1.2 million Help to Buy ISA accounts have been opened since it was introduced and 196,000 bonuses have been paid out. This leaves 1 million who are still saving, and 69% are not aware that they cannot use the money they save for their deposit, so 690,000 could potentially be caught out

[vi] The maximum bonus available from the government through the Help to Buy ISA is £3,000

[vii] The maximum bonus offered by the Help to Buy ISA is £3,000 during the lifetime of the account, while the Lifetime ISA pays out a maximum of £1,000 per year for up to 32 years.

[viii] HM Treasury (April 2018) Help to Buy: ISA scheme quarterly statistics: December 2015 to 30 December 2017. The total value of bonuses paid from the Help to Buy ISA since launch is £132million. A HMT statement issued 26 July stated over £130 million had been paid in bonuses on Lifetime ISA.