Home Residential PropertyHelp-To-Buy Is the UK’s post-Covid property market too hot for Help to Buy ISAs?

Is the UK’s post-Covid property market too hot for Help to Buy ISAs?

by LLP Editor
19th Mar 21 8:22 am

UK average house prices rose to a record £252,000 last year, new figures show.

This means Help to Buy ISA can only be used on properties up to £250,000 outside London which is why it might be time for savers to consider switching to a LISA.

Danni Hewson, financial analyst at AJ Bell, comments: “Pent up demand coupled with government intervention has seen house prices rocket and the market shows no signs of cooling down. Figures from the ONS showed average house prices grew by 8.5% to December 2020* to stand at a record high of £252,000, in England that figure rises to £269,000. Changes to our working patterns during the pandemic have seen people reassess their housing needs, in some cases rethinking where they want to buy, a change which could come at a premium.

“For some first-time buyers that might mean their savings plan needs an overhaul. Though phased out in November 2019 the Help to Buy ISA is still operating for existing holders. It offers a government bonus of 25% for every £200 saved up to a value of £12,000. It was a popular choice for 18-39-year olds looking to get a foot onto the housing ladder. In fact, the latest financial lives survey carried out by the FCA last year found 2.5 million adults saving to buy a home were invested in the scheme.

“With a price cap set at £250,000 for properties outside London the 2021 market might present a problem, and it could fuel frustration as the increased availability of government backed, 95% mortgages seems to make higher house prices more affordable to first time buyers.

“By contrast the Lifetime ISA, brought in as the successor to the Help to Buy ISA, allows would-be homeowners to purchase property up to the value of £450,000 whether that property is in London or elsewhere. You also have the option to save more each year and so benefit from a bigger potential Government bonus.

“With interest rates still at historically low levels the potential to earn £1,000 every year if you put in the maximum £4,000 allowance is nothing to sniff at, but you must be aware it does contribute towards your annual ISA limit.

“As with the Help to buy version you can also team up with a partner to buy a property and both tap into the bonus if you each have a LISA. Additionally, the LISA bonus is paid monthly so you’ll get the money in time for exchange on the property so it can be used towards any deposit requirements. By contrast the Help to Buy ISA needs to be claimed between exchange and completion.

“Converting might seem like a smart move right now and for some it might make financial sense to do so, but there are two major drawbacks. Transferring would require you to wait 12 months after you’ve made your first payment before you can use your savings and the associated bonus for a house purchase. That’s bad news if you’d hope to take advantage of the extension of the stamp duty holiday. The other hitch is that you can only transfer £4,000 a year, so if you’ve been saving for a while, switching might delay your house purchase.”


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