Budget 2015: Help to Buy Isa to top up deposits by 25%
People saving to buy their first home will be given £50 for every £200 they save – up to a maximum bonus of £3,000 – with a newly announced 'Help to Buy Isa', the Chancellor has announced.
He has re-written the Individual Savings Account (Isa) rules once again, this time with the aim of helping prospective homebuyers get a foothold on the property ladder - the Help to Buy Isa reduces the amount they will need to save for a deposit.
Osborne announced that the Help to Buy Isa will boost property deposit savings by 25% up to £3,000 – meaning prospective first-time buyers need only save £12,000 in order to raise the average first-time buyer deposit of £15,000.
The smallest top-up the government will bestow is £400, which means the minimum amount a prospective homebuyer will need to save is £1,600.
The new accounts will be available through banks and building societies from the autumn for a period of four years but once an account has been opened there's no limit on how long people can save up for.
An initial deposit of up to £1,000 can be made upon opening the Isa and up to £200 can be saved monthly.
The Treasury has confirmed that the accounts will be limited to one per person rather than one per home "so those buying together can both receive a bonus".
Account openers must be at least 16 years old and buyers must be purchasing UK properties worth up to £450,000 in London, and up to £250,000 elsewhere. Would-be buyers must also not have opened a cash Isa within the same tax year.
The Help To Buy Isa top-up will only be paid by voucher from the government to the mortgage lender upon purchase of a first-time buyer's home.
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: "The Help to Buy Isa is a great idea. It encourages people to save, which is a far better way of tackling the issue of high house prices than increasing loan-to-values.
"Getting a big-enough deposit is a problem in London and the south-east but less of an issue in the rest of the country. The Help to Buy scheme has been a roaring success; boosting it further with the Help to Buy Isa will really assist first-time buyers and give them more of a chance of making their dream of home ownership a reality."
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).