Recent research has unveiled that millions of individuals are currently ensnared in Help to Buy (H2B) ISAs, with nearly 2.2 million accounts open and a total value of almost £5.5 billion, according to a recent Freedom of Information request made by comparison site, Finder.
In 38 percent of local authorities, the average house prices already exceed the current limit of £250,000, making it arduous for H2B ISA holders to utilize their savings for purchasing a home. This figure is anticipated to increase to over half of UK regions within the next four years at current rates. Despite the average house price increasing by 38 percent since the introduction of the H2B ISA in 2015, the limit has never been raised.
Moreover, it is no longer feasible to open a H2B ISA, and contributions to existing accounts will only be accepted until 2029. The Lifetime ISA (LISA) was introduced as a replacement for the H2B ISA, offering a higher house price limit of £450,000 across the UK. Additionally, account holders can contribute up to £4,000 per year, as opposed to the £2,400 limit for H2B ISAs. However, it is important to note that an individual cannot maintain both a LISA and a H2B ISA simultaneously, thus necessitating a transfer of savings from one account to another.
For some account holders, such as Sophie Barber from London, the limitations of the H2B ISA have been exasperating. Sophie expressed, “I opened a Help to Buy ISA in 2016 to save towards buying my first home. However, the rising house prices quickly made me realize that the £250,000 limit would make it almost impossible to use the ISA in the area I wanted to buy. I decided to open a LISA as a replacement in 2021, but I’m disappointed that I have wasted my time with the Help to Buy ISA, with no bonus granted for the money I’d already saved in those 5 years.”
In response to this, Matt Mckenna, a personal finance expert at finder.com, commented, “It is hard to escape the feeling that the public are the ones being punished for the failings of the Help To Buy ISA being kept up to date, with billions of pounds left in limbo. The Lifetime ISA effectively superseded it and offers more opportunity to save each year, so why can’t people simply transfer their savings (and the bonus they were promised) into it?”
In light of these challenges, Finder is advocating for individuals to be able to transfer their full H2B ISA amounts into a LISA in one go, enabling them to keep the bonus they have accrued. This initiative is aimed at ensuring that around 2 million people with a H2B ISA can retain their much-needed government bonus and avoid setbacks in the process of saving for their first property.
In summary, the current limitations and lack of flexibility in the H2B ISA scheme have left millions of account holders feeling frustrated and let down. As the market dynamics and house prices continue to evolve, it is crucial for individuals to understand their options and make informed decisions to maximize their savings for a home purchase.