Chancellor helps first time buyers with new ISA

In his recent budget, Chancellor George Osborne unveiled a new ISA to help first time buyers, to be launched later this year.

Under the scheme, couples wishing to buy their first home will receive up to £6,000 which they can use as a deposit. They will have to save themselves in the new help to buy ISA and receive a boost to their funds from the government when they decide to buy. The boost or bonus they receive will be 25 per cent of what they have saved, up to £3,000 per individual. Thus, for every £1,000 saved, the government will add £250. The maximum amount that can be placed in the ISA is £12,000 and the bonuses are paid per Isa, rather than per property. In this way, a couple with two help to buy Isas can receive as much as £6,000. The ISAs will also pay interest.

Anyone over the age of 16 who has never owned a house before is eligible to save under the scheme. Savers must use the money from their ISAs for a home for themselves; they cannot use them for a buy to let property, even if they have not owned a property before. The value of properties that can be bought is capped at £250,000 outside London and at £450,000 in the capital.

Individuals can save up to £200 a month and so will need to save for five years if they wish to receive the maximum amount available from the government. Savers can open their account with a lump sum of £1,000, in which case it will take them four and a half years to save the maximum of £12,000.

Critics of the scheme warn that it will increase demand for homes but will not increase supply and that the £2 billion cost to the taxpayer should, instead, be spent on providing affordable housing.