Several building societies have welcomed the Help to Buy ISA scheme, Chancellor George Osborne announced in his budget speech yesterday, as a good option for first-time buyers (FTBs) to save up for a deposit.
The scheme provides you with an option to open an individual savings account (ISA) and the government will add 25 per cent on top of the maximum allowed amount of £200 you can put there per month. This means that for your £200 you will get another £50 from the state.
The maximum boost the government will grant first-time buyers is £3,000 on savings of £12,000. Considering the set monthly limit for the state-supported ISA, savers will need four and a half years to get the maximum government bonus. At the end they will have £15,000 altogether to put towards the purchase of their first home.
To subscribe to the new ISA you have to be a first-time buyer and will have to be over 16 years of age. You will be allowed to deposit up to £1,000 as the first instalment in the new Help to Buy ISA. You can only have one account of that type during the whole duration of the scheme.
First-time buyers interested in opening a Help to Buy ISA will have four years time to do that after the scheme formally launches and this is expected to happen in the autumn of 2015.
Skipton Building Society has welcomed the new scheme, saying it will not only help prospective buyers to raise a sufficient deposit for their first home, but may also allow borrowers to potentially qualify for lower loan-to-value (LTV) mortgage funding thus realising significant interest savings over the life of their mortgage.
Skipton’s head of products, Kris Brewster, commented:
“This new incentive can potentially make a tremendous financial difference to first time buyers. By qualifying for the maximum £3,000 bonus, or £6,000 as a couple, buyers can save for their deposit more quickly or potentially contribute a larger deposit.
“When Skipton was founded in 1853, we were determined to provide opportunities for ordinary people to buy their own homes. We’ve been proud to do this ever since. In 2014 this commitment was extended when we joined the Help to Buy Shared Equity Scheme and last year alone we helped 3,000 first time buyers realise their dream of home ownership with a Skipton mortgage – a figure up 29% on 2013.”
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According to the Council of Mortgage Lenders, the median level of deposit required by first-time buyers across the UK is £25,200.
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Jeremy Wood, chief executive of the Dudley Building Society, commented:
“The Help to Save ISA is exactly the kind of development that lenders, particularly the more forward thinking building societies, should be contemplating. Any assistance with deposits is welcomed and we are conscious that more help needs to be given to the first time buyer if we are to encourage those embarking upon property purchase.
“In recent years the cost of home ownership has been made impossible for some because of increases in property values and low wage inflation. As a Society, we are keen to promote home ownership and are looking at ways to bring further innovation to the market. As an industry we need to bring some fresh thinking to avoid stagnation and move towards supporting aspirational homeowners.”
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Graeme Yorston, group chief executive at Principality Building Society, said:
“A change to ISA rules giving ISA holders more flexibility and a new ISA for first-time buyers, is a huge step to empowering savers and incentivising first-time buyers to make that all-important first step onto the housing ladder. Trusting people with their own savings and enabling them to withdraw from an ISA as they choose is a progressive move that will enable people the freedom to withdraw and deposit, without it affecting their tax-free limit.
Similarly, the Help to Buy ISA will offer aspiring homeowners a crucial leg-up onto the property ladder by helping them to save that all-important deposit. Raising a deposit is a huge barrier to home-ownership for many young people, so today’s announcement will offer a clear incentive to work towards home ownership.”
“Of course, there will be questions around how these new products are implemented with providers, so we await further guidance on this.”
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Commenting on the new scheme, Ipswich Building Society’s chief executive Paul Winter also stressed the importance of more housing construction in the future.
“The introduction of the Help-to-Buy ISA will provide valuable support for first time buyers, increasing each £200 they save by a further £50 from the Government; this will help to address the difficulties many buyers have in raising a deposit. However, this should not be used to mask the real issue behind house price inflation; that of housebuilding not keeping up with demand, “he said.
