The government’s newly announced Help to Buy ISA looks set to help first time buyers secure their first mortgage – but it could take a while to save.
Last month the chancellor announced the new ISA, which aims to boost savings with money straight from the government’s coffers.
First time buyers using the ISA will be given a bonus of 25% on their savings. You can save up to £200 per month, and the government gives a £50 monthly bonus. The contribution is capped at a total maximum of £3,000 (one quarter of a total of £12,000 in savings).
The bonus is paid when the savings are used to buy a first home. In the meantime, the money is held in a cash ISA, potentially gaining interest. Couples buying together can combine their government contribution allowances of £6,000, which could result in a healthy housing deposit.
Although the ISA is potentially a helping hand, it could take a while to affect the housing market. Based on £200 monthly savings, it could take between 4 and 5 years to save the maximum amount of £12,000. But you can shave up to 5 months off that time by paying in up to £1,000 extra in month one. On the downside, over time house prices could go up considerably, potentially leaving hopeful buyers still struggling.
While this scheme has a limit of £250,000 in property value (and £450,000 in London), it will probably have a bigger impact when put towards cheaper housing. A £3,000 government contribution will be a much bigger step towards a £15,000 housing deposit than a £70,000 deposit in London for instance.
The new Help to Buy ISA is available from this autumn, and if combined with a Help To Buy property, first time buyers could make serious headway in affording their own home.
Want to find out more about Help to Buy and other mortgages? Get in touch with me today on 01223 266140.