First time buyers who were supposed to be helped by the high-profile Help To Buy ISA have in fact found it almost useless at helping them save, according to an analysis by the independent personal finance service Moneyfacts.
The service says this is largely down to the top-paying rates on the government-backed ISA having been slashed by 1.73 per cent since its launch in 2015, when the rate was 4.0 per cent.
“It’s terrible news that something that was designed to help people save towards a house deposit has seen interest rates cut so severely. For example, savers who have managed to put £1,200 in the top-paying Help to Buy ISA today would be £20.76 worse off than those who invested the same amount in the top-paying account back in December 2015” explains Moneyfacts financial expert Charlotte Nelson.
“Worse still, the Help to Buy ISA’s replacement – the Lifetime ISA – has failed to take off in the Cash ISA market, with all of the current limited offerings requiring investment in the stock market. A stocks and shares option may a great choice for those looking to use the LISA as a part of their pension, where they may be more willing to take risks. Savers who are aiming to use the pot for a house deposit, however, are less likely to want to take those risks with their capital” she says.
Nelson says with the average age of a first-time buyer increasing and the LISA’s maximum age of 39, many savers who are looking to buy their first property must “feel like they have been cast aside, left to contend with the even lower rates in the standard savings market.”
She adds that with more 5.0 per cent mortgage products on the market it is “achievable” for many young adults to save enough for a mortgage, but she says they should cast their net wider than the current Help To Buy ISA or Lifetime ISA “to consider either a high interest current account or a regular saver, both of which pay some of the highest rates on the market.”