George Osborne announced in the Budget the introduction of the new Help To Buy ISA (HISA). Under the new plans, first-time buyers can save up to £200 a month towards their home and the government will boost their savings by a further 25%.
The accounts are due to be launched in the autumn and savers will need to save for five years to get the maximum bonus of £3,000.
Fidelity Personal Investing calculated that investing the full allowance of £2,400 into a HISA each tax year for four years, would see a potential first-time buyer save £12,000 and achieve potential returns of £252.72 (based on the average UK savings account return for the past 10 years).
Once they buy a property, the government will top up the buyer’s deposit with £3,000, giving them a total of £15,252.72.
However, with the average first-time buyer deposit standing at £29,218, according to Halifax, this will still leave buyers nearly £14,000 shy of the average deposit.
For Londoners, the black hole is even bigger as a first-time buyer needs to stump up an average of £69,000 for a deposit, according to Savills, which means the HISA will leave them with a £54,000 shortfall.
The calculations are based on current house prices. If house prices rise between now and 2020, the deposit gap will be even greater.
Maike Currie, associate investment director at Fidelity Personal Investing, said: “Many young savers will be enticed by the Help to Buy ISA as an attractive way to get a foot on the property ladder. However, our figures show a HISA alone isn’t going to come close to giving you the head start you need to buy your first home.
“First-time buyers need to scrape together a deposit of nearly £30,000 on average, based on current house prices.”
Other critics have warned that the Help To Buy ISA could push up house prices. Think tank the Institute for Fiscal Studies said the policy could add further ‘distortions’ to a market that was already suffering from severe supply constraints.
Tenant campaign group Generation Rent said the Treasury would be better off spending the money building social and council homes thereby increasing supply rather than stimulating demand.