The 2015 budget has thrown up all manner of taxes and cuts, some of which we like the look of (duty cut on beer and cider) and some of which we’re not so sure on (no similar cut on wine).
The main one we’re interested in, though is the Help-to-Buy ISA.
With the original Help to Buy, first time buyers could buy a home with just a 5% deposit – either with a 20% Equity Loan on new builds, or a 20% guarantee for existing houses.
The latter is due to finish at the end of December 2016, and will be replaced by the Help-to-Buy ISA with the intention of helping first time buyers save up a deposit.
George Osborne, Chancellor of the Exchequer described it: "For every £200 you save for your deposit, the government will top it up with £50 more. It's as simple as this - we'll work hand in hand to help you buy your first home."
It sounds great – a free £50 every time you pay in £200? Surely that will help first time buyers save up for their deposit?
Well, not really.
As Mr Osborne has neglected to dedicate money to actually building these houses we’re supposed to be saving for, these first time buyers will all be competing for the same houses.
Let’s take the example of a buyer who has a deposit of £20,000.
They can pay in to the scheme and get £5,000 – but so will every other first time buyer who has paid into the scheme. Assuming they need a deposit of 20% they will now be able to buy a property for £125,000 instead of £100,000 – and so will all the other buyers. The huge levels of competition for the same houses will mean that the price of small properties in commuting distance from jobs will then increase to whatever people can pay – in this case £125,000.
Our first time buyer, who pocketed £5,000 in excitement is actually paying £25,000 more than they would have had the scheme not been introduced – plus interest.
What would actually make a difference is building more houses – something the people have been crying out for.
It’s time the government listened.
