By Dean Jones, managing director at SoSmart Money
First-time buyers were set firmly within the sights of the majority of parties in the build up to the recent general election, and it appears that this target market may have been key to the outcome.
During their last term in office – as part of the coalition government – the Conservative Party introduced various initiatives to help first-time buyers, including the Help to Buy Mortgage Scheme which was followed up fairly recently with the Help to Buy ISA.
Saving for a deposit has long been the bug-bear of first time buyers, but here George Osborne has given them a pretty good incentive to do so, with a 25% savings boost – better than any savings account or traditional ISA on offer. For every pound saved in a Help to Buy bank account, the government will give an extra 25 pence for up to £200 savings per month, with a maximum of £12,000 altogether. If the maximum £12,000 is saved, the account holder will gain £3,000 to put towards a deposit on a house.
Help to Buy ISAs should be available from autumn 2015 and will stay open to first-time buyers for four years. They are only available for people buying their first home to live in, meaning that people intending on buy-to-let won’t be able to take advantage of the scheme. What’s more, if you’re buying with someone else, you can get a Help to Buy ISA each to maximise on savings.
Now that we have the Conservatives back in power, and this time on their own terms, we certainly hope to see more improvements to the housing market. However, the main issue remains around affordability of homes – demand still outweighs supply and this means that prices are still rising, particularly in London where many young, aspiring homeowners are being priced out of the market. The maximum of £15,000 that can be held in a Help to Buy ISA seems pretty worthless in a city where first-time buyer deposits can reach in excess of £50,000.
A first-time buyer in London now needs to earn £77,000 a year in order to get on the housing ladder. This when compared with the average annual wage in the capital of just £27,999 is a bleak outlook. Across the country, a first-time buyer needs to earn £40,553 to get on the property ladder, against an average wage of £22,044.
The Help to Buy ISA will only be available on homes worth up to £250,000 (or £450,000 in London), meaning that those with large amounts of money won’t be able to take advantage of the scheme by gaining bonus payments from the government.
In his manifesto, David Cameron pledged to build 200,000 affordable homes for first time buyers, so it will be interesting to see how the house building sector takes shape. It makes sense that after five years of stimulating the demand in the market, they now continue that legacy by easing the housing crisis with an increase in supply.