Today's budget saw chancellor George Osborne hand out a range of offerings to savers - none so sweet as the offer of up to £3,000 for people eager to buy their first home with the new Help to Buy Isa.
New @HelptoBuy ISA to help first time buyers save for deposit. For every £200 you save, govt will give you a bonus of £50 up to £3k bonus— George Osborne (@George_Osborne) March 18, 2015
The new savings account will give people wanting to get on the UK property ladder the chance to boost their deposit savings by 25%.
For every £200 you save, the government will boost your savings by £50, up to maximum of a £3,000 payout if you save £12,000.
The government estimates around 285,000 first-time buyers will use the scheme every year from this Autumn. There are some restrictions: you must be over 16, and buy a property worth no more than £250,000, or £450,000 in London.
But housing charity Shelter and other groups hit out at the measure, with Shelter saying Osborne was focusing on the wrong aspects of the housing crisis and merely putting a "sticking plaster over a gaping wound."
Here are the pros and cons of the flagship measure:
- It helps to tackle the biggest obstacle for many people trying to buy a home. Even if you can afford a monthly mortgage, and have a steady job, saving up thousands for a deposit can still be impossible. Stephen Noakes of Lloyds Banking Group told the Guardian that saving a deposit is “the key barrier when trying to buy a first home"
- It's not just a token savings boost. A 25% increase is impressive, and makes a real difference to your savings pot. And, as it's an Isa account, it's tax free.
- In fact, for those saving £12,000 or under, it offers a far more tangible payback than other options out there. The Help to Buy Isa gives a return ten times better than the popular Nationwide "Save To Buy" account, which offers 2% AER tax-free interest on balances of less than £20,000.
- Osborne's move recognises that a home can be the greatest savings pot someone has. Yvonne Braun, director of long term savings policy at the Association of British Insurers said the Isa "recognises that housing is a very important part of people's assets over their lifetime which should form part of savings policy."
- Every little helps. For homebuyers, combining this with the Government's other Help to Buy schemes, such as the offer of paying only a 5% deposit, brings the security of owning your own place a step closer.
- It's a mistake, say campaigners, who claim money going into Help to Buy Isas should be spent on what they see as the real problem: Britain's chronic lack of housing. We've been underbuilding for decades, and Shelter said the Isa plan was a "smoke screen" over the drastic housing shortage. “Only measures that actually build more homes will make a material difference to all those priced out and struggling with sky high housing costs. Put in black and white, the money spent on this scheme could build almost 65,000 affordable homes,” it added.
- If you're not using the Help to Buy deposit scheme, even being £3,000 richer could still leave you a long way off from having a deposit for a home. In London, where the average house price is over £500,000, and the average deposit over £70,000, a few grand won't get you very far.
- Fears have been raised that the Help to Buy Isas will only push up house prices further, by increasing the demand for homes but not the supply.
- Even with a deposit, there is still no guarantee you will be able to get a mortgage. Jonathan Harris, director of mortgage broker Anderson Harris, suggested the government needed to go further in its measures: "Tighter rules under the mortgage market review mean many people who shouldn't be struggling to get a mortgage are doing so and this requires government intervention."
- The bonus is only available on house purchases of up to £450,000 in London and £250,000 outside London. With prices soaring, this could be difficult for buyers who live in expensive areas outside the London bubble, like the South East of England.
The maximum bonus size is £3,000 per person and the bonus will be paid when the saver buys their first home.
Accounts are limited to one per person rather than one per home, so people buying together can both receive a bonus.
New accounts will be available for four years, but once one has been opened there is no time limit on how long someone can save for. The scheme can be used for owner-occupied homes only.
The Treasury's one-page fact sheet on Help to Buy Isas: