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The Help-to-Buy ISA

First time buyers will be able to get help from the government to get them on the property ladder under the Help-to-Buy Isa. In his Budget speech on the 18th of March, George Osborne said that the Isa would mean that for every £200 that someone saves, the government will give them £50.

This product will be available through banks and building societies this autumn. The minimum bonus is £400 per person, and the maximum is £3,000, available on purchases of up to £450,000 in London, and £250,000 outside of London. The Treasury has estimated that around 285 first-time buyers will use the scheme every year. A couple can have a Help-to-Buy Isa account each, and both will be paid a bonus.

Researchers at Capital Economics estimate that once their additional borrowing scope was taken into account, the scheme would give buyers an extra £60,000 to spend.

However, while some in the housing market thought this was a good idea, Osborne has faced a backlash about the idea. The Institute for Fiscal Studies (IFS) has warned that the Isa could push up house prices by adding to a market that was already suffering under constraints.

Stuart Adam, an economist at the IFS, told the Independent that, “A lot of benefit in the policy will go to those who would have done that saving anyway.”

“There will be some people who will be persuaded to save more as a result of the policy, but certainly those who will find it easiest to qualify for the maximum top-up [of £50 a month] are those who have the money anyway or have wealthy parents."

“Ultimately, what will make housing more affordable is building more houses.”

Many have argued that this policy could increase the demand for houses without increasing the supply, which will only lead to rising house prices – which is the main challenge for first-time buyers.

The National Housing Federation calculated that the scheme will cost the government £2.1 billion over five years, which could be used to build 69,000 affordable homes.

The chief executive of the housing charity Shelter, Campbell Robb, described the Isa as a “sticking plaster over a gaping wound”.

“Only measures that actually build more homes will make a material difference to all those priced out and struggling with-sky high housing costs,” he added.

There is positivity on the subject however, with the National Association of Estate Agents’ managing director saying that the Isa is needed to engage the first-time buyer market.

Posted by Mark Readings - 07/04/2015 21:57:25

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