Chancellor George Osborne is introducing a new Help to Buy ISA which will allow them to save up to £200 a month towards their first home whereby the government will add a £50 bonus for every £200 saved up to a maximum of £3,000 per person.
In his Budget Day speech he pointed out that the government has already helped tens of thousands of people to buy a home with Help to Buy, which allows people to purchase a home with just a 5% deposit.
Effectively a tax cut for first time buyers, it will be introduced in the autumn and this, coupled with the news that inflation rates will remain low, is good news for those struggling to afford to get onto the housing ladder.
It will provide a significant boost to the ability of a first time buyer to save speedily and effectively, according to Mark Hayward, managing director of the National Association of Estate Agents (NAEA).
‘This is exactly what is needed to engage the first time buyer market, particularly as we have seen the current criteria under the Mortgage Market Reform constraining aspirations to buy a home,’ he said.
He pointed out that it especially benefits couples who are buying for the first time as both are eligible to open a Help to Buy ISA and it is also timely, considering house price inflation out paces wage inflation, so this additional boost to first time buyers savings pots will help them at least keep apace rather than fall behind the inflationary curve.
The move has been widely welcomed by the property industry at a time when first time buyers overcoming the constraints of saving for a deposit has been one of the biggest barriers to home ownership. First time buyers are needed to keep the housing ladder moving.
Lucian Cook, Savills UK head of residential research, also explained that limiting the ISA to a £12,000 savings plan with a £3,000 government contribution should prevent a surge in house prices.
‘It is more likely to help get buyers over the deposit hurdle in the lower value, lower growth markets of the Midlands and the North than say London and the South East, where significant constraints remain,’ he said.
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It is also likely to be welcomed by parents and grandparents by making first time buyers less dependent on the bank of Mum and Dad and more inclined to contribute some top up savings when children come looking for assistance to get on the housing ladder. However, those first time buyers who are keen to lock into low interest rates and who have access to parental support are unlikely to commit to what is effectively a five year savings plan,’ he added.
According to Adrian Gill, director of Your Move and Reeds Rains estate agents, it is a trump card. ‘First time buyers have been dealt a cruel hand in terms of affordability lately as interest rates on savings are low, house prices have largely been on the up for the past six years, and until recently earnings haven’t followed suit. This shortcut to saving for a deposit will bring home buying within range for many more, and consumer confidence will certainly shoot through the bottom rungs of the market,’ he said.
But he also pointed out that housing supply also needs to be addressed as it is no good plenty of first time buyers having a deposit ready if there aren’t the starter homes for them to buy.
Indeed, Adam Challis, head of residential research at JLL, believes that none of the political parties has a clear plan on how to boost housing supply for the long term. ‘We need cross party solutions to drive supply and an end to the politicisation of home ownership. With build rates at barely half current need the long terms solutions for the supply crisis are more important now than ever,’ he said.
‘The Help to Buy ISA for first time buyers can only be seen as a positive, encouraging step, encouraging prudent saving at a time when savings rates available for building a deposit are currently very poor. High house price growth means savings still won’t keep up with deposit requirements. This measure is unlikely to have a significant impact on broader house price growth,’ he concluded.
Paul Smith, chief executive officer of haart, also derided a lack of commitment to increasing housing supply across the UK. ‘Without it, significant house price increases are on the cards. While this is positive for home owners already on the property ladder it will make it even more challenging for those yet to make the leap. A golden opportunity to rebalance the property market has been missed,’ he said.
No aspiring first time buyer will turn their nose up at a 25% boost to their deposit savings, according to Patrick Bamford, director of mortgage insurance Europe for mortgage insurer Genworth.
He pointed out that the idea will look a lot less attractive without extra steps to ensure first time buyers can rely on long term access to mortgages with a 5% or 10% deposit. He believes that whoever wins the general election needs to take steps to prolong existing measures and permanently boost high loan to value (LTV) lending through a mortgage guarantee that runs beyond 2016 in partnership with the private insurance sector.
‘Even with a helping hand with saving, first time buyers cannot afford a return to average deposits of 20%. The next government must not allow a situation where high LTV mortgage product availability and lender activity returns to recession levels when the current Help to Buy mortgage guarantee expires,’ he explained.
Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), also called for more fundamental changes to housing supply and market structures. ‘Anyone expecting a rescue package for home ownership in the UK will still be pinning their hopes on the upcoming election manifestos to go a step beyond this kind of welcome but ultimately piecemeal reform,’ he said.
‘The Help to Buy ISA will help some households but we must guard against a situation where house prices rise faster than savings, the fate suffered by previous interventions in this area. Fragmented policies are not enough to fulfil the dreams of first time buyers. Only a fully formed and long term strategy can turn the tide of sharply rising prices and declining owner occupation,’ he explained.
‘We fully applaud the objective to boost deposits and aid access to home ownership, but politicians must put aside the desire for headlines and cross the party dividing lines to fully address worsening affordability in many, but not all, parts of the UK,’ he added.
Other experts pointed out that while it might be a boost to the majority of would be first time buyers it will not be so helpful for those living in London where house prices, and therefore deposits, are much higher.
‘The new Help to Buy ISA doesn’t address the realities of buying in London. Although a 25% top up to first time buyers’ deposits will put power back into the hands of savers whose cash pots have been sapped by low interest rates, it may not be enough,’ said Andrew Bridges, managing director of estate agent Stirling Ackroyd.
‘Placing a finger on one side of the nation’s financial scales is only half the battle. Its bricks and mortar that puts a roof over your head. Let’s hope the London Land Commission do their homework. London can be housed. You just need to know where to look,’ he added.
