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Fairyland

Will Price Limits Make A Help To Buy Isa Pointless?

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DT Today,

'Will price limits make a Help to Buy Isa pointless?'

First-time buyers risk losing a £3,000 Government handout if their dream property is deemed too expensive

I’m seven years away from being able to buy a property, and am thinking of setting up a Help to Buy Isa.

But the price limit is £250,000 (outside London) and £450,000 (in London) and this might not buy very much if house prices keep rising.

Will the Government be increasing the maximum price limits to reflect property price growth?

DP, via email

There has been a constant flow of reader questions regarding Help to Buy Isas since they launched.

One of the main concerns for potential savers when it comes to the Government backed scheme is the property price cap, which limits the use of a Help to Buy Isa to properties below a certain value.

This is set at £250,000, aside from the 32 London boroughs and the City of London, where it sits at £450,000.

• Which areas count as London for the Help to Buy Isa
• Help to Buy Isa: how it works and best rates
• The tricks to maximising returns on the Help to Buy Isa

With the Help to Buy Isa, the government adds 25pc on top of your savings, up to a maximum of £3,000.

It'll take four and a half years to get the full £3,000 reward with an initial deposit of £1,000 and £200 monthly deposits.

But if you want to buy a more expensive property, you won't get this bonus at all, and the Government has not confirmed if it will revise these limits.

• The best of Telegraph Money: get our weekly newsletter

Therefore if the limit doesn't increase, the impact of house price inflation means more buyers risk losing their Isa bonus.

According to the Land Registry House Price Index, the average price of a London house is currently £503,431, in the South West it's £194,827, in Wales it's £121,854 and the cheapest is the North East at just £100,393.

House prices are expected to increase 5.05pc per year over the next five years, the Office for Budget Responsibility predicts.

• Can you do better than Halifax's 4pc Help to Buy Isa?

Using that figure, a property worth £250,000 today would cost just under £320,000 in five years' time. A property worth £195,000 today would only just slip under the £250,000 limit.

For the London limit, a property worth £450,000 today would cost over £575,000 in five years' time, and a property worth £351,000 today would come in just under the £450,000 limit.

New 4pc Help to Buy Isa

For savers concerned about committing their cash with such uncertainty involved, the Halifax Help to Buy Isa currently offers a 4pc variable rate, which beats any other Isa currently out there.

Regardless of what happens going forward, that is still one of the best savings rates available, and means you don't waste the potential to get 25pc added to your money.

If it transpires that the price limit will become too restrictive, or Halifax dramatically drop their rate, you can then move your cash and 4pc tax free profit across to another savings product.

Edited by Fairyland

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Surely no real person would ask this question? It has to be made up for the house price propaganda?

£3k is about 1% of the kind of prices we're talking about. That's about two or three months' mortgage payments. I suggest that if your house purchase hinges on the gain or loss of £3k then you can't afford a house that expensive to start with.

Of course, the average UK house (as a 40-year-old might reasonably be expected to live in) currently costs about £200k. A 5% rise next year means it'll be £10k more expensive, so your Help to Buy bonus is already wiped out - you'd have been better off buying today.

The whole thing is totally rigged, and all these 'bonuses' will do will be to make house buying even more difficult. I suspect Osborne has made a rod for his own back - there may well be an awful lot of disappointed would-be first time buyers in four years time, clutching £15k deposits that won't buy them a shoebox. I'd skip the 'help' out of principle, but I'm not sure I can afford to sit this one out.

Edited by irrationalactor

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The only silver lining of this manipulation is the possibility its all setup as a managed decline mechanism.

Without these incentives especially the new London ones its a very long way down to sane prices.

Edited by Fromage Frais

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