Help to Buy Isas have come under scrutiny, as it has been found that the government mortgage saving scheme is not able to be used for house deposits.
Having been described as a “shambles”, the Help to Buy scheme is drawing heavy criticism with some accusing the government of deception. Many optimistic savers could find themselves in a tough position when it comes to paying the deposit on a house, as they may have to borrow money to pay it.
How Does Help to Buy Work?
Savers pay into a Help to Buy Isa, earning interest on their balances, set by their bank. At their highest, interest rates could have earned savers as much as 4% on their savings, however in recent months these rates have dropped as low as 1.5%. The real draw of Help to Buy Isas is the government bonuses on top of bank interest rates. Ex Chancellor George Osborne pledged a 25% bonus on savings of up to £12,000, meaning savers could earn as much as £3,000 extra. More on how Help to Buy works can be found here.
Paying Deposits
As discovered by The Telegraph, when buying a house using the government backed Help to Buy scheme, the bonus is not able to be used for the deposit. The government bonus is only made available once the purchase of the property is complete, meaning the initial house deposit needs to have been paid first. With the scheme initially appearing to solve the “Bank of Mum and Dad” issue, the stipulations surrounding deposits could leave buyers having to rely on friends and family to quickly gather a lump sum to pay for it.
Alternatives to Help to Buy
This isn’t the first time that Help to Buy Isas have drawn criticism. We looked previously at how many first time buyers are still being priced out of owning their own home even with the Help to Buy Isa, as many homes exceed the £250,000 price cap. One alternative is for savers to place their money into a Lifetime Isa. As of April 2017, savers under the age of 40 will be able to save up to £4,000 a year, which will earn a 25% government bonus. The Lifetime Isa bonus is applicable when savers use the balance to pay for their first home or when it is withdrawn as a pension. HM Treasury has also confirmed that this bonus can be used when paying for a house deposit.
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