Due to come into force this autumn, this new Isa wrapper will mean you can shield £200 per month from the taxman. As you can open it with an initial £1,000, you can save £1,200 in a Help to Buy Isa in the first month. Crucially, for every £1 you save, the government will add 25p, up to a maximum contribution of £3,000 on £12,000 savings. “For those yet to buy a property, the accounts will be more attractive than virtually any other savings offering,” said David Kilshaw, EY’s head of private client tax, when the new Isa was first announced.
But far from a fillip for thousands, many analysts think that the Help to Buy Isa is ill-conceived. AXA Wealth’s Adrian Lowcock goes as far as saying that the new Isa could, in the long run, “damage the reputation of Isas as simple long-term savings vehicles” – as constant tinkering and product creation serves merely to convolute and confuse.
So why should you be cautious about it?
First, you will not be able to open both a cash Isa and a Help to Buy Isa in the same tax year. While you can still put money into a stocks and shares Isa, if you’ve opened a cash Isa since 6 April, you won’t be able to open a Help to Buy account come the autumn. Further, if you want to save for your deposit in cash, given the monthly limits on Help to Buy Isa contributions, you won’t be able to put as much aside as if you used an ordinary cash Isa (up to £15,240 this tax year).
Second, it’s vital to remember that you will not receive the government top-up until you’ve found a suitable property. The bonus will only be on offer for homes worth up to £450,000 in London, and £250,000 elsewhere in Britain. Although, unlike with other government schemes, you’re not restricted on the kind of house you must buy, the problem for Londoners is reasonably obvious: in an area so devoid of supply, where the average price of a home is £514,000, finding a property worth under £450,000 could prove tricky. The reality could be that you’re left with your savings “languishing in an account paying paltry returns for five years,” warns Fidelity’s Maike Currie.
Third, you may end up seriously disappointed with the amount you’ve managed to save. Figures from Fidelity Personal Investing show that, using the Help to Buy Isa, the average first-time buyer would come up nearly £14,000 short for their deposit. Even if you contribute the full allowance of £2,400 each tax year for five years, you will only save £12,000 – along with potential returns of £252.72. And even with the government top-up of £3,000, this is some distance from £29,218 – the current average deposit for first-time buyers in the UK.
Unless combined with the Help to Buy Scheme, says Danny Cox of Hargreaves Lansdown, “this will be nowhere near enough to fund the deposit for a house”. And in London, the problem is even starker. The average first-time buyer needs £69,000 for a deposit, meaning that the Help to Buy Isa at today’s house prices would leave them £54,000 short.
Cox is adamant that there should be the option to use stocks and shares within the Help to Buy Isa. “Over a five-year period, they are likely to perform better than cash – and of course most first-time buyers save for longer than [that] anyway.” This would not cost the government (or the taxpayer) more, he says – because the bonus is based on contributions and not value. But the outcome for the saver is “likely to be much better”.