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Demise of Help to Buy ISA won’t hurt the scheme’s popularity ‒ analysis

  • 05/12/2019
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Demise of Help to Buy ISA won’t hurt the scheme’s popularity ‒ analysis
Brokers have shrugged off the closure of Help to Buy ISAs to new applicants, arguing it will make little difference to the popularity of the Help to Buy scheme.

The Help to Buy ISA was closed to new applicants on 30th November.

According to government figures, the ISA had been used to assist with the purchase of almost 260,000 properties, with around £320m in government bonuses handed out to savers to supplement their savings.

However intermediaries are unfazed by the closure of the accounts, suggesting that the Help to Buy scheme will remain incredibly popular among buyers.

Poor marketing held the ISAs back

Andy Wilson, founder of Andy Wilson Financial Services, said his firm had seen only a handful of applicants making use of the ISA, and suggested this limited take-up may be related to the “lack of marketing” around the scheme rather than any flaws with the concept itself.

He said: “The only significant push of the Help to Buy ISAs has occurred leading up to their withdrawal date, and only then by financial advisers, commentators and the press.

“The plans themselves are fundamentally sound and beneficial to first-time buyers, and those that have had the foresight to open one may well benefit to a relatively small extent during the remaining 11 years that bonuses are available.”

Price cap imperfections

James Mole, managing director of London Belgravia Wealth Management, it was a “shame” that the product has been closed, noting that while they were far from perfect, they offered a welcome helping hand in assisting people onto the housing ladder.

Mole added:“I think the Lifetime ISA is pretty good also, but there seems to be more rules which are harder to understand. The biggest problem with both in my opinion was always the property price cap of £450,000. I live and work in London and £450,000 barely gets you a one bed in most parts of the city.” 

Mole also noted that around half of the first-time buyers he sees have some form of deposit-boosting ISA, and added that he always recommends that clients use them where possible.

Buyers couldn’t get bonus funds when they needed them most

Greg Cunnington, director of lender relationships and new build at Alexander Hall, said that anything that helps first-time buyers to get together a deposit is a positive, but noted that the Help to Buy ISA only allowed buyers to access the bonus funds at completion, meaning they didn’t have it when they most needed it.

He continued: “Instead the ISA bonus was used more to help with furniture costs and other items after completion, so in reality the end of the ISA bonus scheme is unlikely to make a big difference to the Help to Buy purchase market. This is good news as the Help to Buy scheme continues to be a real help to the affordability and deposit challenges that face first-time buyers in the market.”

Learn lessons with the LISA

Wilson also pointed to the introduction of the Lifetime ISA in 2017, which he argued offers savers “greater flexibility and potentially much larger bonuses”.

However, he suggested that lessons had to be learned from the performance of the Help to Buy ISA if the authorities want to ensure it isn’t similarly underwhelming.

Wilson explained: “I don’t think the demise of the Help to Buy ISA will be greatly mourned, especially while there is an arguably better alternative in the LISA. However, without greater promotion and raising of awareness this product will also have limited take-up.”

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