When Sophie Barber, 27, opened a Help to Buy ISA in 2016, she hoped it would help her save towards a deposit for her first home.
Introduced in 2015, the savings account allows holders to pay in £200 a month and receive a 25 per cent “top-up” from the government. Savers can stash up to £12,000, receiving a £3,000 bonus.
But Barber, who lives in London, quickly realised that house prices were rising faster than a maximum saving of £15,000 could help with. There was also the property price cap (£250,000, rising to £450,000 in London) to contend with.
“[The] limit would make it almost impossible to use the ISA in the area I wanted to buy,” she says. “I decided to open a Lifetime ISA as a replacement in 2021 but I’m angry that I have wasted my time completely with the Help to Buy ISA.”
Barber is one of 2.2 million people currently trapped in a Help to Buy ISA. A Freedom of Information request made by Finder, a price comparison site, revealed that £5.5 billion of savings are currently held in these accounts.
“I’m angry that I have wasted my time completely with the Help to Buy ISA.”
But average house prices across the UK far exceed the limit imposed by the scheme’s rules. Help to Buy ISAs can only be used to buy a house with maximum purchase price of £250,000, or £450,000 in London.
The average house price in London is now £499,663, according to the latest HM Land Registry figures, almost £50,000 above the Help to Buy ISA limit and requiring a 10 per cent deposit of £49,966. Finder found that house prices in the UK have risen 38 per cent since the scheme was introduced, but the cap has never been lifted.
The Lifetime ISA (LISA) was introduced in 2017 as an alternative. LISA holders can pay in up to £4,000 a year and receive a 25 per cent top-up from the government — but the £450,000 London house price cap remains. You also cannot combine a Help to Buy ISA and a LISA.
“The public are the ones being punished for the failings of the Help To Buy ISA being kept up to date, with billions of pounds left in limbo.”
Barber can save more in her LISA, but as she’s unable to transfer the top-up bonus she was effectively back to square one. “There’s no bonus granted for the money I’d already saved in those five years,” she says. “I’m also now restricted by putting £4,000 a year into the LISA so I can’t quickly build my savings in this account back up to the deposit contribution I’d already saved in the Help to Buy ISA.”
Finder has launched a campaign to allow savers stuck with Help to Buy ISAs to transfer their savings – plus their bonus – to their LISA.
“It is hard to escape the feeling that the public are the ones being punished for the failings of the Help To Buy ISA being kept up to date, with billions of pounds left in limbo,” said Matt Mckenna, personal finance expert at Finder.
“The Lifetime ISA effectively superseded it and offers more opportunity to save each year, so why can’t people simply transfer their savings – and the bonus they were promised – into it?But even with these changes, there’s a nasty sting in the tail of a LISA for London first-time buyers.
Should you try and use it to buy a property over the £450,000 London cap, you’re hit with a 25 per cent penalty charge. If you saved £20,000 with a £5,000 bonus, for example, you would need to pay back £6,250. In the 2022-23 tax year there were £47.2 million of withdrawal charges recorded by HMRC.
The Building Societies Association (BSA) and The Investing and Saving Alliance (TISA) have also called for the reduction of penalty charges.But with little for first-time buyers in the general election manifestos, London’s frustrated savers are still in limbo.
