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How much help will a Help to Buy Isa be?

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Key Adviser Issues in Budget 2015

Chancellor George Osborne says the brand new Help to Buy Isa “combines two of our most successful innovations” in the liberalisation of Isas and the Help to Buy mortgage scheme.

One of those four planks in the ‘saving revolution’, the new account will give first-time buyers that save up to £200 a month towards their first home an uplift of £50 within the tax-relieved environment.

The minimum bonus is £400 per person - requiring a commitment to regular saving at the maximum level of government support for at least eight months - and the maximum bonus is £3,000 per person.

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It is available on home purchases of up to £450,000 in London and up to £250,000 outside London. A 10 per cent deposit on the average first home costs £15,000, according to the Treasury, so Mr Osborne says people will need to only put in up to £12,000.

According to the Council of Mortgage Lenders, the median level of deposit required by first-time buyers across the UK is £25,200.

Before a client asks: no, you can’t dump the full £12,000 in at the outset under the new Isa limits and get that £3,000 immediately. Each government payment is capped at £50, so to reach that maximum a saver would be contributing for on a monthly basis for five years.

The new accounts will be available for four years, but once individuals have opened an account there’s no limit on how long they can save for.

Mr Osborne promises he will work with industry so the account is ready for this autumn, “and we’ll make sure you can start saving for it right now”. This might mean some form of retrospective payments will be offered.

A statement from HM Treasury explains that accounts will be available through banks and building societies from this autumn, with no minimum monthly deposit.

Alongside helping prospective buyers to raise a sufficient deposit for their first home, Kris Brewster, head of products at Skipton Building Society, says the Isa may allow borrowers to save more, thus qualifying for lower loan-to-value mortgages and significant interest savings.

Mr Brewster says: “This new incentive can potentially make a tremendous financial difference to first-time buyers. By qualifying for the maximum £3,000 bonus, or £6,000 as a couple, buyers can save for their deposit more quickly or potentially contribute a larger deposit.”

Not everyone gave a thumbs up to the government’s Help to Buy Isa.

Rick Eling, senior client fund manager at Sanlam, says while encouraging people to save in any format is positive, he fears the Help to Buy Isa will divert money away from shares, bonds and other assets into an already overvalued asset class.

Mr Eling says: “British house prices need no encouragement to keep rising to ever-higher multiples of salaries. We have supply-side constraints, so extra demand can only lead to further home inflation and further problems down the line.”

Others said the related problem with the idea was simply that it did little to really help the core issue that house prices are too high and rising too fast for most lower earners, especially in London and the south-east.