Will The Help to Buy ISA Actually Help?featured

This week, during his annual Budget, George Osborne announced that he plans to help first time buyers onto the property ladder by giving them money towards their deposit. George claims that for every £200 a first time buyer saves into a new ‘Help to Buy ISA‘, the government will add £50.

I have to admit, when I first heard the news, I was pretty excited. I’m hoping to have saved £12,000 by Christmas and so the news that the government might add an extra 3 grand on top of that had me smiling from ear to ear. But then I delved a little deeper and realised that this one isn’t for me.

To qualify for the scheme, you can’t put more than £200 away each month, along with an initial £1000 deposit. This means that it will take you at least four and a half years to save up the full £12,000 to benefit from the government’s £3000 offering.

Who will it help?

Economist, Stuart Adam, argues that the scheme will only help those who have saved up a deposit already, or have wealthy parents who can help them.

He said: “Certainly those who find it easiest to qualify for the maximum top-up are going to be those who have the £12,000 of savings anyway or have wealthy parents and will be able to drip it in to the ISA.”

I’m not sure that I completely agree. I mean, if you wanted to buy your own home and had enough money in the bank to do so, why on earth would you delay for more than four years for the sake of £3000? Besides, assuming these people are renting, the longer they take to buy, the longer they’re throwing money away each month by paying their landlord’s mortgage instead of their own.

Let’s imagine I spend the next four years at my parents house until I have saved £12,000. Even the rent I’m currently paying to mum would add up to more than three times the government contribution. So to put it simply, the wait would simply not be worth it.

I do, however, agree that for parents of teenagers, the Help to Buy ISA is a no-brainer if they have a couple of hundred pounds spare each month. I can imagine that there will be parents out there who urge their sons and daughters to open a Help to Buy ISA as soon as they turn 16, so that they can squirrel money away on their behalf to build a decent savings pot. By the time they graduate from uni or have a few years of work behind them, they should have saved a nice sum. Considering more than half of first time buyers have help from mum and dad when it comes to saving for a deposit, I don’t think we should be too shocked by this.

Better than a kick in the teeth

If the scheme does go ahead, I do believe that there are people out there who will benefit from it. If you can’t afford to put much more than £200 a month away and believe it’ll take you several years to save anyway, a government boost in the first four to five years of your saving journey is better than a kick in the teeth.

However, for those of us who don’t want to wait that long, we may as well go it alone.

On the opposite end of the spectrum, for those that can’t save anywhere close to £200 a month, this isn’t much of an incentive either as they’re still going to be waiting years and years until they have enough to buy.

Less than impressed

Londoners are likely to be less than impressed by the scheme also. What on earth is £15,000 going to get them? Even in the cheapest boroughs of London, you’d struggle to secure a house with that little.

Since research shows that it can take some people in the UK up to 22 years to save up for an average deposit of £27,719, it makes me think that George Osborne’s new plans aren’t really going to make much difference.

Burst the bubble

If the government was serious about helping first time buyers get on the housing ladder, it would focus on bursting the housing bubble by building more affordable housing.

If you want to know more about how the government could tackle the housing crisis and help people onto the property ladder, then I’d definitely recommend taking a look at all the work that housing charity, Shelter, does.

If you don’t have a clue what an ISA even is in the first place, don’t worry, take a look at my beginner’s guide to ISAs.

What do you think of Osborne’s Budget for 2015? Do you think you’ll save money in the Help to Buy ISA? Or do you think more needs to be done to help you buy your own home? Let me know in the comments below

Photo credits: Birdhouse, Creative Commons