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Impact of Help to Buy Isa

This article is part of
Guide to Help to Buy Isas

Prior to the launch of Help to Buy, and post credit crunch, options for those hoping to get a foot on the property ladder were limited.

The availability of high loan-to-value mortgage products has increased significantly since the launch of the Help to Buy scheme in 2013, particularly at 95 per cent LTV.

The Council of Mortgage Lenders estimated that almost half (48 per cent) of first-time buyers were unassisted in 2014, compared with only 34 per cent in 2011, but a spokesman for HM Treasury said the government believes this is still too low.

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The Treasury pointed to CML statistics which show the volumes of first-time buyers entering the housing market remaining well below pre-crisis levels.

“One of the barriers to first-time buyers wishing to buy their first property is the length of time required to build up a deposit. The rate of interest on savings has fallen significantly since 2008 as a result of the activist monetary policy needed to support the recovery,” stated the Treasury spokesman.

“People making the difficult choices necessary to save towards buying their first home have been impacted by the low interest rate environment and the increase in deposits since the financial crisis. The Help to Buy Isa will support first-time buyers by rewarding regular saving.”

Having a good supply of first-time buyers is a key element of a healthy housing market, noted Zack Hocking, head of savings at Virgin Money.

While many would-be first time buyers have the necessary income to support a mortgage, Mr Hocking noted that some do not have all of the capital to fund the necessary deposit.

“The Help to Buy Isa scheme could be a great option for them, giving a boost to their deposit, helping to maintain a healthy supply of first-time buyers to support the market,” he stated.

As the Help to Buy Isa only launched on 1 December, David Ingram, founder of mortgage adviser directory, reckons it is too early to say if the savings scheme will give first-time buyers the boost the government hopes it will.

“Leading up to the launch of the Help to Buy Isa on 1 December, opinions had been divided on whether the scheme will help the housing market. Critics of the Help to Buy scheme in general have warned that the addition of a special Isa could fuel a further increase in house prices by pushing up demand when there isn’t enough supply,” he explained.

“On the other hand, the Autumn Budget statement saw the chancellor commit to building 400,000 new homes before the end of the decade, which could go some way towards solving the country’s lack of housing supply.

Mr Ingram continued: “As the scheme has only just launched, only time will tell whether its effects will be positive or negative. However, there is little doubt that it gives first-time buyers a much needed incentive to kick-start their savings and get themselves on the property ladder.