In the 2015 UK Budget there was a new introduction, the Help to Buy ISA. This is a scheme which gifts UK first time buyers 25% interest on money saved up to £12,000 in a specific account. This means the UK Government is giving out up to £3,000 to every UK resident that has yet to buy their first property. The condition is publicly known to be that this money must be used on a deposit for a mortgage, to buy a house. If for whatever reason you decide not to buy the house, you can still take that money out at any time but you lose the potential 25% government bonus. This ISA was a pretty massive change to help the UK, where the average income is £22,000 a year, and most banks expect an income of £41,000 a year to secure their mortgage. Does this ISA sound too good to be true? That is probably because it is.
As of today it has been announced that large bank Halifax has cut its ISA rate from 2.5% to 2.0%, Lloyds has also cut its rate from 2.0% to 1.5%. This gives the banks more money, as it lets them reinvest that money to make more money, this is something banks already do with your money if you were not aware.
A small-print clause in the Help to Buy ISA has revealed that the ISA cannot be used to put down a deposit on a house, in fact it cannot be used until the mortgage is is fully purchased. This is stinging buyers all over the UK right now as people were not made aware of this until they attempted to purchase houses, and with the scheme being so young it is only just coming to light now, a year later.
You can only put in 200 pounds a month, meaning to get your full ISA you will need to wait 4 and a half years, this is why it has only just come to light that there are issues with the scheme.
The bonus is only applied at the end of the tax year as well, potentially causing you to miss out on tax benefits for 12 months!
The UK has a big problem in that there is wasted money in the system. Many people see a house as an incredibly long term goal and are demotivated to begin to save up for a house. 60% of people in the UK have less than £1,000 pounds in their savings and this is leading to people having to rent their whole lives wasting money. You would think that the people in charge of these laws would not want to devalue their own properties but they are so large that property devaluation probably doesn’t affect them. There are two great motivators that affect why people do what they do. These are monetary motivation and social motivation. People are affected by motivators differently but apparently there wasn’t enough social motivation in the UK to convince residents to seek to buy houses so instead the government has opted for this financial motivation, a scheme which has worked very well. But this has only worked well as a motivator.
Play with this idea, imagine the government knows that people will be motivated by the 25%. They will be more willing to start saving up, putting them in a better position and making them less reliant on government handouts or any other kind of support since they can now afford their own support. If you tell the population you will give them a free £3,000 if they can save up £12,000 and then turn around and say that they can’t have the £3,000 then they are going to be angry (rightly so), however they did just successfully manage to trick the resident into finally starting to save money which is what the government actually wants from the scheme.