How to Prepare for The End of The Help to Buy Scheme
Did you know that the Help-to-buy ISA terminates in 3 years and 5 months?
If that sentence has you panicking, you’re not alone as almost 63% of first-time buyers were unaware of the scheme ending in 2023, and the deadline to sign up is 30 November 2019.
A whopping 75% thought it was a permanent loan option. Where does this leave you if you haven’t saved up enough to secure your dream home?
According to Savills, current Help-to-Buy ISA savers could be pushed into shared ownership in order to buy a house. If you have already opened a Help-to-Buy ISA, you can keep saving into the account but it’s worth noting you must claim your bonus by 1 December 2030.
While this may be a lot to get your head around, some property experts believe you may not even need it to step onto the property ladder.
A report by the National Audit Office (NAO) found almost two-thirds of home buyers registered on the scheme could have bought a property without it. It also found that 1 in 25 participants had household incomes of over £100,000.
Gareth Davies, the head of NAO, commented: "Help To Buy has increased home ownership and housing supply, particularly for first-time buyers. However, a proportion of participants could have afforded to buy a home without the government's help.”
What about Lifetime ISAs?
A Lifetime ISA is also an option to consider. Mortgage provider, Mortgages-Online is forecasting relief for the ‘Bank of Mum and Dad’ as the benefits of the Governments Lifetime ISA initiative have started to pay off.
Paul Flavin, founder of Mortgages-Online, maintains that the default source of first-time buyers mortgage deposits is about to start changing.
He said: “The current first time buying generation has become accustomed to their mortgage deposit coming from their parents.
"With the rise in house prices, and the more cautious approach from many mortgage lenders moving away from 100% mortgages, at Mortgages-Online we have seen more and more early buyers relying on the Bank of Mum and Dad as the only option when it comes to finding the deposit.
“With the return of 95% mortgages though, and for those who took out a Lifetime ISA from the 2017 launch date the position is now set to change.”
The Lifetime ISA is available to anyone under the age of 40, and enables the saver to invest up to £4000 a year.
Annually the Government adds a bonus of 25%, making it a much more attractive scheme than the earlier Help to Buy ISA introduced in 2015, which restricts investors to £2400 investment a year, and provides a bonus payment of just £3000 compared with a potential bonus of £32000 on the Lifetime scheme.
“Some commentators have highlighted the limitations of the Lifetime ISA, in that the savings can only be taken out either at age 60, or on the purchase of a first home” notes Paul Flavin, “but investors who have saved the maximum of £333 a month for the past two years now have a nest egg of £10,000.
“With average house prices currently running at just over £200,000, and in many locations substantially below this, we are now seeing buyers able to enter the market again without having to rely on their parents.”
Help-to-Buy vs Lifetime
Nottingham Building Society announced that in the first quarter of 2019 seven times more people have opened Lifetime ISAs compared with Help to Buy ISAs. “Based on these behaviours,” says Paul Flavin, “the Bank of Mum and Dad is set to receive some relief in the years to come.”
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