The headline announcement in the March budget with regards to housing was the introduction of a help to buy ISA. The scheme has been designed to tackle low interest rates on the high street for first time buyers. It allows them to get a £50 top up with every £200 they save. The account will be available for four years from autumn this year and you can put an initial £1,000 in and then save £200 per month. Each person rather than each purchaser can open an account with the bonus being available for houses of up to £450,000 in London and £250,000 in the provinces. The maximum that savers can contribute to the account is £12,000 per applicant with the booster from the government taking the amount saved to £15,000.
Although this scheme is to be welcomed it will only fully benefit first time buyers who are not going to enter the market for 56 months, as this is the amount of time they would need to save to qualify for the full government contribution of £3,000. Also at the lower end of the housing market where there are the most first time buyers an incentive such as a help to buy ISA could inflate prices further. Some may find that even though they have tax payers funded savings the market has been pushed further out of their reach, and I don’t think lenders currently have the appetite to step in and bridge the gap by increasing income multiples. In fact at the moment we are finding the reverse is true with many lenders reducing the income multiples to new borrowers, and being very strict on outgoings. For example sometimes taking into account travel to work costs when it is apparent the applicant can walk to work.
In the budget the chancellor gave the long suffering saver a top up by eliminating tax on interest for many of them. Then for the ones with savings that will still be taxed I believe it is possible he will make an announcement to appeal to them, with regard to inheritance tax in the run up to the election. But those actions only secure the grey vote, therefore I believe the help to buy ISA announcement is a headline grabber to try and secure the younger vote. However as mentioned earlier it will only appeal fully to the long term saver with plenty of disposable income, but I suppose every little helps.
Kieron Bassett
13th April 2015
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