Government’s new Help to Buy ISA criticised

A row of terraced houses

Chancellor George Osborne announced a new ISA to help first-time buyers as part of the pre-election budget on Wednesday 18 March, but critics have observed that the measure is an insufficient substitute for additional efforts to increase housing supply.

Just one of the housing measures outlined during the budget announcement, the Help to Buy ISA will allow prospective homeowners to save up to £200 per month, in addition to an initial £1,000 deposit, to put towards the cost of buying a home. At the time of purchase, the government will contribute £50 for every £200 saved.

The maximum individual bonus will be £3,000, which it will take a saver four years to realise. In this time, however, house prices will likely have risen by a significantly larger amount—as property group CBRE’s Head of Residential Research Jennet Siebrits observes 1.

…over this period house prices could have risen by circa £40,000, Siebrits commented. Overall, we would have preferred to see more supply side initiatives as part of today's Budget.

Overall then, it does not appear that the new first-time buyer initiative will grant significantly more purchasing power to those struggling to get onto the housing ladder. Therefore, it appears unlikely that it will have a material effect on property prices.

Further housing investment

Alongside the new Help to Buy ISA, the chancellor announced investment in more homes across the UK. Measures include:

  • Further progress towards the construction of a new garden city at Ebbsfleet
  • £97 million to the Greater London Authority and London Borough of Barnet to support the regeneration of Brent Cross
  • £7 million to the Greater London Authority to support the Croydon ‘Growth Zone’
  • 20 new housing zones across the UK, which could support construction of up to 45,000 new properties

The government will also turn its attention to enterprise zones, which encourage investment and development through simplified planning laws and business rates relief. The Budget 2015 outlines plans for new enterprise zones in Plymouth and Blackpool and the expansion of existing zones at Humber, Manchester, Mersey Waters, MIRA, Oxford Science Vale and Tees Valley.

Extra bonuses for savers

There will be further rewards and support for savers, including:

  • A tax-free personal savings income allowance of £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers
  • Changes to the ISA rules to enable savers to withdraw and replace their ISA savings in the same tax year without penalty
  • An increase of the National Savings and Investments premium bond investment limit to £50,000

Conspicuous absences: inheritance and council tax

The last council tax valuations on properties in England and Scotland were in 1991, and economic commentators argue that the current bands do not reflect current property prices 2. But despite voices on both sides of the commons calling for council tax reform (and a widespread belief that it would be fairer and more effective than the ‘mansion tax’ proposed by Labour) 3, there was no mention of it in the final budget of this parliament.

The press also expected the chancellor to raise the inheritance tax threshold to £1 million, removing the liability altogether for some 20,000 families and potentially bolstering the Conservatives’ core, middle-class vote. According to reports, this plan’s inclusion in the Budget was vetoed by the Conservatives’ coalition partners, the Liberal Democrats 4.

Read the government’s Budget 2015 in full.

References

  1. White, A. “How the Budget 2015 affects your house price and mortgage rate.” The Telegraph. 18 Mar 2015.
  2. Aldrick, P. “Reforming council tax will ease housing boom and bust cycle, says OECD.” The Times. 24 Feb 2014.
  3. Jenkins, S. “We should reform council tax – not impose Ed Balls’s ludicrous mansion tax.” The Guardian. 2 Oct 2014.
  4. Dominiczak, P. and Ping Chan, S. “Budget 2015: Inheritance tax slashed in £6bn Tory election plan.” The Telegraph. 16 Mar 2015.

This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.

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