Within the mortgage and housing markets we’ve been rather accustomed to a number of ‘rabbits from hats’ over the last few years when it comes to both Budget announcements and Autumn Statements. Just in the past couple of years we’ve been ‘treated’ to the introduction of the Help to Buy scheme (in both its guises) and then the stamp duty changes which seemed like the ultimate crowd-pleasing gesture when they were announced last year.
In this month’s Budget, given what had gone before and the fact we are so close to the general election, expectations about what George Osborne could deliver were not particularly high. Indeed, if you listened to the Budget itself then, apart from a commitment to introduce 20 new housing zones on brownfield sites outside London you might have thought there was little to get our own industry’s juices flowing.
However, just at the last minute, there was a gift to potential first-time buyers with the announcement of the ‘Help to Buy ISA’ – essentially a monthly savings scheme whereby the Government commit to put in £50 to the pot for every £200 saved by an individual. The maximum that can be saved is £12,000, and for that the State will drop in £3,000 allowing one individual to have a £15,000 deposit, however if they are purchasing with a partner, and they also have the maximum in a HTB ISA, they will have a combined £30,000 (with £6,000 coming from the government).
On the face of it, it seems like a good deal but as always there are a number of caveats. On hearing the initial announcement I had visions of parents taking out HTB ISAs for all their children however it can only be opened by those over 16 years old; new HTB ISA accounts will only be available for four years from this Autumn, however the money can be held in them for as long as they wish and (one presumes) the government will honour the bonus.
The other major point to realise is that the bonus will not be dropped into the account every month; instead it will only be ‘paid’ when a property is purchased. Which essentially stops any savers from getting their hands on the money early, doing a flit and not using it to buy a property. Ultimately, the saver never gets the money at all because it will go straight to the vendor or developer in the form of the deposit monies.
And here are some more caveats – the saver can only save a maximum of £200 per month albeit with the opportunity to open it with a £1,000 deposit; plus the bonus will only be ‘paid’ for homes purchased below £250,000 outside London, and below £450,000 in London. This is presumably to stop any charge that the ISA is adding to house price inflation across various regions of the country, but particularly the capital.
Given its name I did wonder if the savings could only be used for homes within the government’s Help to Buy scheme, which would ultimately be focused on new-builds, but it seems that this isn’t the case. The savings can be used to fund a deposit on any home – within the parameters outlined above – and the government will ‘stump up’ the bonus. In essence, we have a somewhat glorified five-year savings scheme with a nice incentive if you can save enough. To get to that £12,000 maximum is however going to take you close to five years, given that you can’t throw in your £12,000 in one job lot.
However, it is another move to support first-timers and help them develop a savings habit which, for those without access to the Bank of Mum and Dad, is desperately needed when you consider the level of deposit required all around the country, especially if you’re looking for 75% LTV. One does wonder however, given the length of time the ISA needs to run for, if future government’s will move the goalposts – as they did with the Child Trust Fund for instance – and if the commitment to the incentive will last. I would suggest this needs to be ingrained in the T&Cs before an account is opened otherwise take-up could be much less than anticipated.
Finally, given the big developments that could have been announced this seems somewhat small fry, particularly when compared to previous years. It also doesn’t seem to do much to boost housing supply in the UK – a problem which fundamentally affects everything about the housing market. There will need to be much more action taken in the next Parliament on this major issue by whoever the next government might turn out to be.
Richard Adams is managing director of Stonebridge Group
