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OneFamily
4 min read

£34.1 million Help to Buy ISA bailout

Posted in: Research

  • Nearly 49,000 first-time buyers have been caught out by flaw in the Help to Buy ISA that means government bonus cannot be used towards deposit
  • Half (51%) of these buyers were forced to borrow money to enable them to complete on their property purchase – an average gap of £1,400 each
  • Two in five (42%) of those currently saving into a Help to Buy ISA are unaware that they cannot use the bonus towards their deposit
  • A third (34%) of current Help to Buy ISA holders would transfer money to the Lifetime ISA if £4,000 transfer limit were removed

Close to 49,000 first-time buyers have been caught out by a flaw in the Help to Buy ISA that means the government bonus cannot be put towards their initial deposit, with half (51%) forced to borrow money from friends or family.

This is according to research by OneFamily, which combines data secured under the Freedom of Information Act with market research to reveal the impact on first-time buyers and their families.

Close to 49,000[i] first-time buyers have been caught out by a flaw in the Help to Buy ISA that means the government bonus cannot be put towards their initial deposit, with half (51%) forced to borrow money from friends or family.

On average, those who were caught out had to borrow £1,400 from friends and family at short-notice – a total of £34.1 million since the ISA was introduced[ii].  They also faced a delay of around seven weeks as they arranged the loan. As a result, one in five (20%) of those who used the Help to Buy ISA deem it misleading, while 14 per cent regret ever using it.

The Help to Buy ISA is set to close to new customers in six months from now (30 November) but those who are currently saving will be able to continue to do so until 2030. Currently, there are 960,800 active accounts[iii], which means an additional 182,550 buyers could be caught out by the product flaw[iv] – and it could be more, as more would-be homeowners open the accounts over the next six months.

Two in five (42%) of those currently saving into a Help to Buy ISA were unaware that they cannot use the bonus towards their deposit on exchange, and now many feel frustrated (46%), worried (45%) and let down (22%). More than four in five (81%) say their purchase will be delayed as they will have to save for longer, while 13 per cent think they will end up borrowing the additional funds.

With the issues with the bonus payment and the scheme closing to new customers in November, many of those who were saving into a Help to Buy ISA have now transferred some or all of their savings its replacement – the Lifetime ISA – instead. Of those that have transferred into a Lifetime ISA, two in five (39%) cited that their friends or family had experienced a problem with using the Help to Buy ISA which made them aware of the flaws.

Of those currently saving into the Help to Buy ISA, one in five (18%) are considering transferring their savings. However only £4,000 can be transferred from a Help to Buy ISA to a Lifetime ISA in a single tax year. This restriction is already holding some savers back, with one in three (34%) savers saying they would switch to the Lifetime ISA if they were able to transfer all the funds in their account.

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

“While it was intended to help first-time buyers, the Help to Buy ISA has turned out to be more of a hindrance for those who were hoping to put the government bonus towards their initial deposit. It’s not fit for purpose which is in part why it is closing to new customers from November. But many more first-time buyers could still be misled and open an account before this, adding to the thousands who are already at risk of being caught out.

“On average it takes 10 years to save for a deposit, over this time first-time buyers could benefit from a government bonus of £10,000 from a Lifetime ISA instead of the maximum £3,000 bonus available from the Help to Buy ISA – and savers can actually put it towards their deposit. But the £4,000 cap on transferring funds is keeping people trapped in a dud account, making it even harder for them to achieve their dreams of home ownership. We’re urging the government to reiterate its support for the Lifetime ISA and remove the transfer cap – so that the funding available delivers the benefits that were intended.”

[i] According to HM Treasury data, released 26 February 2019, 256,313 people used the Help to Buy ISA between 1 December 2015 and 30 September 2018. 19 per cent of survey respondents who purchased their home with support from the Help to Buy ISA said that they were unable to use the money towards their initial/exchange deposit. This means that 36,932 have been caught out by the flaw in the Help to Buy ISA since it was introduced (256,313 x 0.19 = 48,699)
[ii] Just over half (51%) of those who were caught out by the flaw in the Help to Buy ISA borrowed money to close the gap. This means that 24,350 borrowed money. On average, those who had to borrow money to close the gap left by the flaw in the Help to Buy ISA had to borrow £1,402 each. Therefore, in total, £26.4 million has been borrowed since the Help to Buy ISA launched (24,350 x £1,402 = £34.1 million)
[iii] Data secured from HM Treasury under the Freedom of Information Act 2000 revealed that there are currently 960,801 active Help to Buy ISA accounts
[iv] As 19 per cent who have bought their property with support from the Help to Buy ISA were caught out, one can assume that if all those with active accounts purchased a home 182,550 more first time buyers could be caught out (960,801 x 0.19 = 182,552)