Help to Buy Isas will still leave many with a £14,000 shortfall

31st March 2015

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The average aspiring first-time buyer will still be nearly £14,000 short of a deposit, despite the Chancellor’s launch of the Help to Buy Isa in the Budget earlier this month.

Fidelity Personal Investing has calculated that despite the Help to Buy Isa (HISA) offering £50 for every £200 saved, would be home buyers are still facing a huge affordability gap.

The average first time buyer deposit currently stands at £29,218. The research shows that investing the full allowance of £2,400 into a HISA each tax year for five years, could see you save £12,000 and achieve potential returns of £252.72. Once you buy a property, the Government will top up your deposit with £3,000, giving you a total of £15,252.72 – which still leaves you nearly £14,000 shy of the average first time buyer deposit, based on current house prices, says Fidelity.

For Londoners, the affordability gap is even wider as a first time buyer needs to stump up an average of £69,000 for a deposit which means the HISA at today’s property prices will leave them a staggering £54,000 shortfall.

Fidelity suggests that to boost your chances of building a deposit over five years, you could consider investing in a stocks and shares Isa alongside your savings account, many young people at this stage in their lives will not want to put their capital at risk.

If you invested an extra £240 per month into a stocks and shares ISA over the same period. Based on an annual growth rate of 5%, Fidelity calculates that this could result in a pot of £15,871.52. Add this to your HISA savings, along with the government bonus, and you could have the deposit you need.

However, if stock markets do not perform in your favour, you could end up much worse off.

Maike Currie, associate investment director at Fidelity Personal Investing, says: “Many young savers will be enticed by the Help to Buy Isa as an attractive way to get a foot on the property ladder. However, our figures show a HISA alone isn’t going to come close to giving you the head-start you need to buy your first home. First time buyers need to scrape together a deposit of nearly £30,000 on average, based on current house prices.  If potential buyers have any chance of getting there, and keeping up with house prices increases, they need to turbo-charge their HISA.

“The Help to Buy ISA cannot be opened alongside a standard cash ISA in one tax year, so a stocks and shares ISA could be another option. Of course, the stock market can rise and fall over time, and there’s no guarantee that you will pocket these returns. But equally, investors need to remember that they will only get the government top-up if they find a suitable property. If they don’t they would have left their savings languishing in an account paying paltry returns for five years.”

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