19 Mar First Time Buyer Mortgages and the 2015 Budget
Feeding time at the bi-annual budget speech was in full force today.
We got fed up pretty quickly of George’s often repeated clichés about ‘walking tall’, ‘work hard, save hard’ and the dreadfully cheesy ‘all in this together.’
So we thought we’d look a little deeper than the underlying message (vote Tory) at what’s actually happening for savings, first time buyer mortgages, and the shiny new Help to Buy ISA.
The big, flashy news on savings is a tax cut on the first £1,000 of savings interest, with no tax on the first £500 for higher rate tax payers.
This promise of ‘tax free banking’ sounds like a great idea.
In reality, this is of limited impact. Banks currently offer a miserly rate of interest on cash deposits (despite flashy introductory offers).
A higher rate tax payer with £100,000 in savings, paying a gross interest rate of 2.5% would see an increase in real terms of just 0.5%.
The Help to Buy ISA
Of far more impact for those keen to get a foot on the property ladder is the introduction of the Help to Buy ISA.
This would be available for properties up to £450,000 dropping to £250,000 outside London.
The scheme even allows two individuals to both contribute their bonuses towards the same property (we reckon it’ll make a great chat up line).
It’s not all good news for first time buyer mortgages however.
A government contribution of £3000, backed by personal individual savings of £12,000 is unlikely to have a major impact on a deposit for a first time buyer in London. Here’s our calculation:
The scheme allows a maximum saving of just £200 a month. Assuming the maximum opening contribution of £1000, saving the maximum each month from then and a nominal interest rate of 1%, it’d take you 4 and a half years to get this bonus from the government.
£3,000 for free from your Help to Buy ISA sounds wonderful. But average London house prices rise by more than that in a month.
First time buyer mortgages are far more punishing in terms of interest rates, unless the borrower has a significant deposit set aside from this Help to Buy ISA.
Will this help First Time Buyer Mortgages?
In short, no. The value of that lump of cash from the Help to Buy ISA, gained 4 and a half years later, would have been negated in month one. The tax relief on cash savings is merely a sign of already low interest rates. There’ll be no measurable impact for first time buyer mortgages.
It’s also worth mentioning that some banks and building societies already offer ISAs on far more favourable interest rates and terms for savers looking to contribute towards a home deposit.
So it seems we’re back to political gimmicks aplenty. Business as usual indeed.