MILLIONS of first-time buyers could lose out on vital cash help to land their dream home.
Rising house prices could push some buyers over the limit for claiming a bonus through a key help to buy scheme.
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The Help to Buy Isa is an account for those savings towards their first home and offers a bonus worth up to £3,000.
Around 2.5million savers have one of these saving pots and you can use it to purchase a property of up to £250,000, or £450,000 in London.
The average house price has now soared past this limit, putting some savers at risk of being unable to use the saving bonus.
The limit has not increased since the accounts launched in 2015, when the average home cost just under £200,000.
Laura Suter, head of personal finance at AJ Bell, said: “Help to Buy Isa savers risk being priced out of the property market, as UK house prices have soared since the accounts launched and the limit on the ISAs has failed to keep pace.
“A year ago the average house price was just under the limit, but it has risen £27,000 in the past year and is now £275,000 at the latest figures”
“Anyone who wants to buy a property worth more than the limit faces not being able to claim the Government bonus on the Help to Buy Isa, meaning they face up to a £3,000 shortfall on their deposit money.”
First-time buyers, especially those in areas where prices are rising the most like London and the south east should consider switching to a Lifetime ISA (Lisa), she said.
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Lisas launched in 2017 and the Help to Buy Isa has closed to new customers.
Anyone who already has a Help to Buy Isa can move their money to a Lisa.
It comes with a higher limit of £450,000 for all areas, plus a higher bonus amount, though anyone thinking of moving their money should check if the account suits their needs in other ways too.
“Help to Buy Isas are closed to new customers, but around 2.5 million people have the accounts and could get a higher bonus and more expensive property by switching to a Lisa
“Anyone switching to a Lisa needs to be mindful of a few rules, to make sure the accounts are right for them.
“The biggest one is that the account needs to be open for a year before you buy a house, so it’s no help if you plan to buy in the next 12 months.
“But with a higher property limit, higher contribution limit and higher potential Government bonus, you could get more free money by moving.”
Lisa’s can only be opened if you’re under 40, so if you don’t have on already and you’re older than this you won’t be able to switch.
Help to Buy and Lifetime ISA: what’s the difference?
The main difference between a Help to Buy and Lisa is the higher purchase price and bonus.
You can save up to £4,000 a year in a Lisa and the government will add 25% on top.
Saving the maximum amount for 32 years would net you £32,000 of free government cash, which is more than you can get under the Help to Buy Isa.
The maximum amount you can get depends on when you open the account and how long you save for before buying a home though.
You can also save more into a Lisa each year – up to £4,000, versus £2,400 in the Help to Buy Isa.
With Help to Buy you can pay in up to £200 a month and that’s it – you won’t be able to pay in more next time if you skipped a month.
With a Lisa you can pay in whenever you want, wither regularly or as a lump sum, up to £4,000 a year.
This could mean a much bigger and quicker bonus when compared to a Help to Buy Isa, according to the government’s Money Helper website.
But the Help to Buy Isa offers a more flexible approach to saving.
With a Lisa you can only withdraw cash to either buy your first home or when you reach 60.
If you want early access you’ll pay a 25% penalty on the amount withdrawn, so you’d get back less than you paid in.
There’s no penalty with Help to Buy Isas.
Additionally, a Help to Buy account is only held in cash, where with a Lisa you can invest the savings in stocks and shares if you want.
Bonus differences when buying a home
The two accounts also vary in how and when the bonus is paid.
For a Help to Buy Isa, money comes through when you complete on the purchase of the property – and you can only get it if you’re buying it with a mortgage.
The cash actually never reaches your account but instead goes straight to your solicitors and is tied up in the purchase transaction.
It must be used towards your deposit or to cover the legal fees, such as solicitor’s charges or stamp duty.
Lisa cash is paid monthly and can be used as part of the deposit when you exchange contracts.
And with a Lisa you have to wait a year after opening the account to get the bonus on your first home.
Can I have both accounts and how do I switch?
You’re allowed to open a Lisa if you already have a Help to Buy Isa, but you can’t use both funds to buy your new home and keep the bonuses.
But you can use your Help to Buy Isa for property and your Lisa for retirement and keep both bonuses.
You can also transfer your Help to Buy Isa into your Lisa if you want.
It’s worth looking around for the best Lifetime Isa and you can choose a cash or stocks and shares account.
Before you open a Lifetime Isa make sure the provider allows you to transfer the money from a Help to Buy account.
An Isa is a type of account that’s tax-free and so you won’t owe anything on any interest, returns or bonus you make on either accounts.
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