AJ Bell press comment – 10 November 2022
- Help to Buy ISA usage is on track for its lowest year since 2017
- If usage continues at the same pace in 2022, there will be a drop of more than a quarter on the previous year
- Help to ISA property limit stuck at £250,000, despite average house price hitting £296,000
Laura Suter, head of personal finance at AJ Bell, comments:
“The latest figures show that in the first half of this year just 43,700 people have successfully used a Help to Buy ISA to buy a first home, compared to 122,000 for the full year last year. If usage continues at the same pace just 87,400 people will be able to use the Help to Buy ISA this year, a drop of more than a quarter on the previous year. While Help to Buy ISAs are closed to new customers, it is estimated that around 2.5 million people still have the accounts* where they are saving for their deposit for their first home.
“There’s no doubt that the frozen property limit on the Help to Buy ISA will put many people off using it. People using a Help to Buy ISA can only buy a property worth up to £250,000, or £450,000 in London. However, since its launch in December 2015 the average house price has risen from £205,000 to £296,000**, taking it far higher than the property limit. It means more and more people will be priced out of using the ISA to buy a first home. If the limit had risen in line with average UK property prices it would be £360,000 today.
“While some of the drop-off in Help to Buy ISA usage might also be down to fears of a house price crash putting off first home buyers, as the data only runs until the end of June it likely pre-dates many of these worries. The drop-off also can’t even be blamed on the recent mortgage market turmoil, which saw rates soar and many delay their house buying plans as a result, as this happened in September. Both of these factors mean we could see an even larger drop in Help to Buy ISA usage this year than expected.
“One option for Help to Buy ISA holders is to transfer their money into a Lifetime ISA. Savers in both the Help to Buy ISA and Lifetime ISA get the same 25% government bonus on money they save, but the government handout is capped at a maximum of £3,000 for Help to Buy ISAs where with the Lifetime ISA it’s only capped at £1,000 a year.
“However, some savers who want to transfer the money into a Lifetime ISA, and benefit from the higher property limit of £450,000 across the UK, will find they have to do it over multiple tax years. Savers can only pay £4,000 a year into a Lifetime ISA, even if they are transferring from a Help to Buy ISA. This means anyone with more than that will need to transfer some now and then wait until April before they can transfer the next £4,000.
“Another thing to consider is that the Lifetime ISA account needs to be open for a year before you buy a house, so it’s no help if you plan to buy in the next 12 months. But with a higher property limit, higher contribution limit and higher potential government bonus, you could get more free money by moving.”
* Based on the FCA’S latest Financial Lives survey: https://www.fca.org.uk/publication/research/financial-lives-survey-2020.pdf
**Based on UK Government house price index: https://landregistry.data.gov.uk/app/ukhpi/browse?from=2015-12-01&location=http%3A%2F%2Flandregistry.data.gov.uk%2Fid%2Fregion%2Funited-kingdom&to=2022-09-01&lang=en
|
|
Bonuses paid |
Total property completions |
Value of bonuses (£m) |
Value of properties (£m) |
|
2016 |
62,238 |
45,656 |
36.01 |
7,732.73 |
|
2017 |
109,493 |
81,642 |
95.76 |
14,109.82 |
|
2018 |
114,684 |
97,974 |
125.57 |
15,424.61 |
|
2019 |
114,350 |
88,573 |
137.98 |
15,512.79 |
|
2020 |
107,490 |
82,693 |
139.04 |
14,682.81 |
|
2021 |
121,994 |
93,944 |
179.25 |
17,029.44 |
|
2022 Full Year estimate |
87,398 |
68,772 |
145.38 |
12,718.90 |
|
2022 Actual January-June |
43,699 |
34,386 |
72.69 |
6,359.45 |
|
Source: Gov.uk and AJ Bell. |
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