New figures show a huge drop in buyers using the scheme, but are there better options?
The number of people buying a home using a Help to Buy ISA has fallen off a cliff, according to the latest figures. Just 9,409 homes were bought using the scheme between January and March this year. That’s a drop of 14% compared to the previous three months.
The Help to Buy ISA was launched in December 2015 to much fanfare but closed to new applicants in November 2019. It’s designed to help first-time buyers save for a deposit, with the government adding a bonus of £50 for every £200 saved.
The scheme has helped over 600,000 people buy their first home, with the average price paid standing at £178,012. This is significantly less than the current average price for a first-time buyer property, which now stands at £236,461.
So, why are the numbers falling?
Experts say there are a few reasons for the Help to Buy ISA’s declining popularity:
- Rising house prices: The scheme limits buyers to properties worth up to £250,000 outside of London. This limit hasn’t budged since the scheme was launched, despite soaring house prices.
- The Lifetime ISA: This newer scheme, launched in April 2017, offers a much larger potential bonus. The downside? The rules are more complex and there are bigger penalties if you withdraw your cash for anything other than buying a house before the age of 60.
- The cost of living crisis: Spiralling prices and stubbornly high mortgage rates mean many potential first-time buyers are struggling to save for a deposit, even with government help.
What are the experts saying?
Sarah Coles, head of personal finance at Hargreaves Lansdown, paints a bleak picture for the scheme’s future: “At this rate, we’ll be on track for the worst ever year for the Help to Buy ISA.”
Coles highlights the scheme’s limitations, saying: “The limits aren’t fit for purpose… Outside London you can only buy a property worth up to £250,000 with a Help to Buy ISA, and the average first-time property is now alarmingly close to this level.”
What are the alternatives?
If you’re a first-time buyer struggling to get on the property ladder, the Lifetime ISA might be a better option, particularly if you are aged 18-39. The Lifetime ISA allows you to buy a property worth up to £450,000 and accepts contributions of up to £4,000 per year.
What should existing Help to Buy ISA holders do?
If you already have a Help to Buy ISA, it’s important to keep an eye on rising house prices. If you think you may need to buy a property over the scheme’s limits, consider switching to a Lifetime ISA (if you’re eligible) or explore other savings options.