Help to Buy ISAs – Is £250,000 ‘affordable’ in the South East?

The Government’s Help to Buy ISA scheme was launched in December 2015 with the aim of helping first time buyers secure an ‘affordable’ home with the Government topping up ISA contributions by 25%, up to a maximum of £3,000.

The scheme is due to close on 30th November 2019 after which time it will not be possible to open a new account and benefit from the Government bonus. As the deadline approaches, we look at whether the Help to Buy ISA is fit for purpose for our clients in the South East.

Any first-time buyer who wishes to take advantage of the Help to Buy ISA must meet several criteria which include a requirement that the property being purchased meets the Government’s definition of an affordable home. There are two thresholds in determining whether a property is affordable – if the home is in London then the maximum purchase is set at £450,000. However, outside of London there is a blanket maximum of £250,000 irrespective of where the property is located and the house prices in that area.

Whilst there are parts of the country where £250,000 can buy you a substantial new home, for example you can quite easily purchase a 4 bedroom detached house in Burnley for £150,000, this is not the case for first time buyers looking to purchase in towns throughout Surrey including in our own town of Dorking.

At the time of writing this article, we carried out a search on Rightmove to see how many properties would be classed as ‘affordable’ for first time buyers looking to take advantage of the Help to Buy ISA bonus and purchase a home in Dorking or the surrounding villages. Having searched within a 5-mile radius ‘as the crow flies’ of our Dorking office, there was only one house being marketed for £250,000 or less – a small one-bedroom terraced property. For those who are content with a one bedroom flat in central Dorking, there are three such properties available ranging in price between £210,000 – £230,000.

Having established the affordable home threshold outside of London is unrealistic for clients looking to buy in the Dorking area, we then searched within 5 miles of our Camberwell office to see whether the higher affordability ceiling of £450,000 which applies there provides greater opportunity for first time buyers to benefit. There were 243 results for houses within the 5-mile radius including a 5-bedroom terraced house with an asking price of exactly £450,000!

Under the Government’s own definition of affordability, it is more affordable to buy a 5-bedroom house in London than it is to purchase a ‘one up one down’ starter home in Dorking.

For those who are considering opening a Help to Buy ISA before the 30th November deadline and looking to purchase in Dorking and surrounding villages – unless you are hoping to purchase a studio flat or find a mortgageable shed your options are limited. You may instead wish to consider the alternative option of a Lifetime ISA  https://www.gov.uk/lifetime-isa which has a £450,000 maximum purchase price across the entire UK instead of benefitting only those who live in London or areas with cheaper house prices. By way of comparison, there are currently 87 houses within 5 miles of our Dorking office which could be purchased with a Lifetime ISA compared to the single house available to those using the Help to Buy ISA scheme.

If you have any queries regarding any aspect of residential conveyancing, please contact Stephen Carr on 01306 884432 or email scarr@meaby.co.uk