- People could be stuck in Help To Buy Isas with almost 2.2 million open offers
- Government surcharge of 25% is only payable if users purchase property under £250,000
- Help to Buy Isas was introduced in 2015 but closed to new accounts in 2019
Nearly 2.2 million people will be unable to access the government bonus on their Help To Buy Isas, according to a Freedom of Information request.
Savers can only benefit from the 25 per cent bonus if they buy a property worth £250,000 or less outside London, or £450,000 in London.
Due to the rise in house prices since the accounts were created in 2015, more savers will now be disqualified from the bonus.
According to the FOI request from the comparison site Finder, the British have collectively deposited £5.5 billion into these accounts.
The 25 per cent bonus is only applied to a Help to Buy Isa when a property is purchased, while the 25 per cent bonus is paid out if you save into a Lisa
Help to Buy Isas were introduced in 2015 to help people get onto the property ladder. However, by November 2019 they were closed to new customers, in favor of the Lifetime Isa.
The main benefit of the Help to Buy Isa came from the fact that the government would provide a 25 per cent top-up on the purchase of a house.
But the £250,000 price cap on properties outside the capital is now a much bigger limiting factor for stranded customers than it was in 2015.
Since then, the average house price has risen by 38 percent, but the limit has never increased.
Separate research by Finder found that the average house price in 132 of 348 local authorities is above the £250,000 mark.
The Lifetime Isa or Lisa allows property purchases of up to £450,000 across Britain, although even that limit is proving too low for some buyers in the most expensive areas.
Savers can put up to £4,000 a year into a Lisa each year, compared to £2,400 a year with a Help to Buy Isa. In addition, they receive the 25 percent government bonus as they save, rather than at the time they purchase a property.
It is not possible to combine a Lisa and Help to Buy Isa. This means that someone who wants to take advantage of the superior benefits of the Lisa will have to transfer their money.
Yet they are not allowed to move it all at once, as it is only possible to transfer a maximum of £4,000 per year, at the expense of adding new money to a Lisa.
Sophie Barber, 27, from London, is someone who feels let down by the Help to Buy Isa scheme. Sophie opened a Help to Buy Isa in 2016 to save for the purchase of her first home.
“House prices continued to rise and I quickly realized that the £250,000 limit would make it almost impossible to use the Isa in the area I wanted to buy,” Sophie said.
‘I’ve decided to open a Lisa as a replacement in 2021, but I’m angry that I’ve completely wasted my time on the Help to Buy Isa, with no bonus awarded for the money I’ve already had in those five years saved.
‘I’m also now limited to paying £4,000 a year into the Lisa, so I won’t be able to quickly rebuild my savings in this account up to the deposit contribution I had already saved in the Help to Buy Isa.’
Finder is campaigning to ensure Brits can convert their entire Help to Buy Isa balance into a Lisa in one go, keeping the bonus they’ve built up.
Matt Mckenna, personal finance expert at Finder, said: ‘This will ensure that around 2 million people with a Help to Buy Isa can keep their much-needed government bonus and not lose ground in the long slog of saving for their first property.
‘It’s hard to escape the feeling that the public are the ones being punished for the shortcomings of the Help To Buy Isa being kept up to date, while billions of pounds are left in limbo.
‘The Lifetime Isa has effectively replaced it and offers more opportunities to save every year, so why can’t people just transfer their savings – and the promised bonus – into it?’