First-time buyers are set to benefit from a Help-to-Buy Isa, which offers a major tax break to those saving up a deposit to make their first step on to the property ladder, the Chancellor announced today.
For every £200 that aspiring homeowners save up towards a deposit for their first home, they will receive a top up of another £50, George Osborne announced.
The move will mean that someone saving up a ten per cent deposit on the average first-time buyer property valued at £150,000 will now have to save £12,000 and the government will chip in £3,000 more. The tax break will be capped at £3,000.
Boost: The government will top up first-time buyers’ deposits with £50 for every £200 saved
The chancellor explained this is the equivalent of first-time buyers saving for their deposit from their pre-tax income.
He added: ‘We’ll work with industry so it’s ready for this autumn and we’ll make sure you can start saving for it right now.’
A couple saving towards a home together could benefit from a bonus of up to £6,000 as both savers would be eligible for a £3,000 bonus.
The move will cut the amount of time first-time buyers will need to save for by just under a year, if they are putting together a five per cent deposit, according to Lloyds.
The announcement made in the Budget today was part of what the chancellor labelled ‘four new steps in a savings revolution’.
As part of this strategy, the chancellor scrapped tax on the first £1,000 of savings income every year. The move will mean 95 per cent of savers will pay no tax at all on their savings, he said.
He also launched a ‘fully flexible’ Isa, which will allow savers to take money out of their Isa and put it back in again without losing their tax free entitlement.
He said the former set-up restricted ‘what people can do with their own savings – but I believe people should be trusted with their hard-earned money’.
The fourth strand of his savings revolution was an announcement that pensioners will be able to sell their annuities – swapping a regular monthly income for life for a one-off lump sum without a prohibitively large tax penalty.
The launch of the Help to Buy Isa will help millions of aspiring homeowners who can afford the monthly mortgage payments required to buy a property but simply cannot manage to put aside enough cash for a down payment.
As many as 52 per cent of purchases by new buyers last year were made with help from the ‘bank of mum and dad, recent figures from the Council of Mortgage lenders reveals.
The figures underline the continuing uphill struggle faced by those who are not able to call on relatives to help.
Savers will be able to make an initial deposit of £1,000 when they open a Help to Buy Isa. After that, they can put in anything up to £200 a month.
The plan: The Treasury explains how the Help to Buy Isa will aide aspiring first-time buyers to get on to the property ladder
The Isa will be only be available to first-time buyers purchasing UK properties. The minimum bonus that will be paid out is £400 per person – the maximum is £3,000.
The bonus will be available on home purchases up to £450,000 in London and up to £250,000 outside London.
The accounts will be available through banks and building societies from the autumn and will be available for four years. But once first-time buyers have opened an account, there will be no limit on how long they can save for.
Much-needed support: First-time buyers have had to increase the size of their deposits considerably over the years as house prices have risen
Accounts will be limited to one per person rather than one per home, so those buying together will both receive a bonus. It will only be available to those aged 16 and over.
Yvonne Braun, director of long term savings policy at the ABI said: ‘We welcome the announcements for more flexible ISAs and help-to-buy ISAs. These measures should help re-build a savings culture in the UK, which is critical for people’s financial wellbeing. Helping people build up their savings is the best way to make sure they really have freedom and choice in retirement.
‘The help-to-buy ISA rightly recognises that housing is a very important part of people’s assets over their lifetime which should form part of savings policy.’
Pump up the volumes: The move could help increase the number of aspiring first-time buyers reaching the first rung of the property ladder
Mark Hayward, managing director of the National Association of Estate Agents said: ‘This is exactly what is needed to engage the first time buyer market, particularly as we have seen the current criteria under the MMR constraining aspirations to buy a home.
‘It especially benefits couples who are buying for the first time as both are eligible to open a Help to Buy: ISA which potentially means £6000 from the Government bonus towards a new home.
‘It is also timely, considering house price inflation out paces wage inflation, so this additional boost to first time buyers savings pots will help them at least keep apace rather than fall behind the inflationary curve.’
Brian Murphy, head of lending at Mortgage Advice Bureau added: ‘Offering the savings bonus on purchases worth up to £250,000 outside London or £450,000 in the capital looks far more sensible than the maximum £600,000 limit that currently applies to house purchases through the Help to Buy equity loan or mortgage guarantee.
‘The £600,000 cap has proved unnecessary for the vast majority of homebuyers using either scheme to secure a mortgage. The new ISA is a welcome innovation – but the fact that different rules and timescales exist for the various elements of Help to Buy has the potential to cause confusion, and first time buyers will want to understand how they work in tandem.’
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