Bristol has once again been named as the most popular spot for first-time buyers purchasing their home with the help of Government-funded bonuses, This is Money can reveal.
A total of 196 homes have been bought in the city with the help of a Lifetime Isa from the UK’s most popular provider so far this tax year.
This is according to figures from Moneybox, the app-based firm which is now Britain’s largest provider of the tax-free savings product.
Bristol has once again been named the most popular spot for first-time buyers buying with the help of the Lifetime Isa – which pays up to £1,000 a year in the form of a government bonus
With just over a week to go until the end of the 2020-21 tax year, the figures given exclusively to This is Money have revealed Bristol was followed in the rankings by Edinburgh, Manchester and Birmingham.
These were followed by South East and South West London, with the capital split into multiple sections.
Other towns and cities which saw more than 100 homes bought using Moneybox Lifetime Isas in 2020-21 included Glasgow, Reading and Brighton, while Southampton rounded out the top 10 with 99 homes purchased.
The Lifetime Isa offers a 25 per cent Government bonus on savings of up to £4,000 a year, handing out up to £1,000 in ‘free’ money provided savings are used for a first home or after an account holder turns 60.
Money can be used alongside other deposit savings from elsewhere, and can be put towards a house once it has been open for 12 months.
Both cash and stocks and shares options are available, with Moneybox one of the few providers to offer both. However, the data it shared with This is Money revealed cash Lifetime Isas were overwhelmingly more popular among first-time buyers.
Of the 4,991 homes bought during this tax year with the help of a Lifetime Isa, the vast majority, 4,125, were purchased with the help of a cash version, and just 866 with the help of an investment Lifetime Isa.
‘One thing that does seem to carry through in all areas is that the use of cash Lifetime Isa far outweighs that of the stocks and shares Lifetime Isa,’ David Hollingworth, from mortgage broker London & Country, said.
‘That perhaps doesn’t come as a surprise considering the fact that a first-time buyer will probably have a shorter target timeline for using their savings to make the step onto the ladder.
|City||Number of house purchases||Average Lifetime Isa payout towards a home per person|
|South West London||126||£10,244|
|South East London||126||£10,673|
‘That shorter period of time means that they are less well-equipped to ride out any volatility in equities. That along with the likelihood that a first-time buyer will be more risk-averse and cautious with their cash seems to be borne out by the figures here.’
HMRC paid out £8million worth of bonuses to the buyers of those homes in 2020-21, at an average of £1,602 per person. This would give an average Lifetime Isa balance of £6,411 before the bonus is added.
And the broken-down figures provide an insight into varying property prices for first-time buyers across the United Kingdom. In Glasgow, for example, the average Lifetime Isa balance put towards a home in 2020-21 was £7,095, compared to £10,673 in South West London.
‘Lockdown means my plan to get on the housing ladder is ahead of schedule’
24-year-old Katie Mcleod, from Swindon, initially planned for her and her boyfriend to get onto the housing ladder at the end of 2022, after spending 2020 and 2021 going on holidays and trips.
However, ‘because we couldn’t do anything, we put the money into Isas instead’, she said.
As a result, both her and her boyfriend, whose family she moved in with ahead of the lockdown last year, are now halfway towards what they think is their savings goal ahead of schedule.
24-year-old Katie Mcleod is saving for her first home using a Lifetime Isa
Having both saved £5,000 out of a £10,000 target, Katie, who works for a company which builds warehouse storage for online retailers, said the couple plan to visit a mortgage adviser this summer in the hope their £20,000 deposit will be enough.
Katie has had her eye on buying a house since she was 20 years old, and admits during the lockdown she has become ‘a little bit obsessed with houses’. However, she said she has never been sure about being able to afford somewhere.
A Lifetime Isa saver with Moneybox, she said she used to use the app’s round-up feature but disabled it when she was furloughed on 90 per cent of her pay for five months last year.
Now she simply saves lump sums each month when she gets paid.
She has been able to save more money as a result of lockdown due to driving less and not spending money on the gym, while her living costs have been reduced as a result of moving in with her boyfriend’s family.
She said both are keen on buying somewhere in Swindon. She has found a few places she really likes, but says ‘he likes new builds and I like the idea of living in a 1930s build’, which may lead to one or two disagreements in the future.
‘The fact that some areas of London have crept into the higher positions perhaps links to the longer period that aspiring buyers have now been saving into Lifetime Isas, especially as the Help to Buy Isa is no longer open to new customers’, Hollingworth added.
‘The London saver figures seem to point to larger saving amounts as well, in terms of the average bonus being paid. That would not be a surprise given the higher prices that those buyers face and the need to accumulate a larger war chest toward their deposit.’
Moneybox account holders have seen £94.5million in Government bonuses added to their Lifetime Isas so far in 2020-21.
When the bonuses for March are paid by HMRC, it estimated around £130-£145million is likely to have been added, which it said would represent a record year.
|Location||Number of Lifetime Isa savers paid bonuses||Total value of bonuses paid||Average bonus paid per person|
|South East London||5,396||£2,858,317||£530|
|South West London||4,937||£2,858,488||£579|
The jump could be due to the fact that many savers will add money to their Lifetime Isa in one lump sum in March, just before the tax year ends.
Moneybox co-founder Ben Stanway said: ‘For a long time the awareness of the Lifetime Isa and its benefits has been low. We think the take-up this year is driven by an increase in awareness of the product, but also by the temporary reduction in the withdrawal penalty to 20 per cent, designed to support people during the pandemic.
‘So far this tax year we’ve paid out £95million in bonuses to over 200,000 customers. This figure has increased significantly since last year, demonstrating the impact that this small change can have on uptake amongst younger savers.
‘It also shows the potential the Lifetime Isa has to help young savers on their journey to home ownership, or to boost their retirement savings. We were disappointed to see the Government increase the withdrawal penalty for the Lifetime Isa back to 25 per cent.
‘We think a permanent reduction is what’s needed to allow the Lifetime Isa to fulfil its potential and become the default savings product for young people.’
Cities and other areas of the UK with higher property prices, including London, Bristol, Birmingham, Manchester and Reading were more likely to be home to those who had opened a Lifetime Isa without necessarily buying a home yet.
While this may simply be down to the fact more people live in these areas, it also suggests there is a greater need for Government funding to get onto the property ladder in such areas. Again, the average government bonus paid per person varied, from £445 per person in Northern Ireland to £579 in South West London.
Across all Moneybox customers, which even included 40 Lifetime Isa savers from the Outer Hebrides off the north-western coast of Scotland, the average bonus paid was £519, suggesting savers are putting away just over half the £4,000 annual allowance.
Figures published by This is Money last year from the country’s then-largest Lifetime Isa provider, Skipton Building Society, found Bristol was again the most popular spot for first-time buyers.
Some 380 homes were bought in the city in 2019, while Birmingham, Manchester, Reading, Edinburgh and Glasgow also featured in its top 10.
With more than 250,000 accounts, Moneybox is now the nation’s largest provider of Lifetime Isas – although Skipton was used for more first home purchases in 2019, with 11,381 funded with the help of the tax-free account.
Other cash providers include Nottingham and Newcastle building societies and Paragon Bank, while investment options are available through the likes of AJ Bell, Hargreaves Lansdown, Nutmeg and OneFamily.
With Moneybox seeing a potentially record year, it could be that more savers are turning to Government-backed schemes designed to help first-time buyers as property prices continue to rise.
Movements in first home prices and deposits across the year 2020-21, according to Halifax
The average first-time buyer house price rose from £237,600 in February 2020 to £257,934 in the same month this year, according to figures from Britain’s largest mortgage lender Halifax, despite the pandemic.
And with many lenders shelving low-deposit mortgages during the coronavirus crisis, the average deposit put down by first-time buyers rose by £12,000 to nearly £59,000. All regions of the UK had an average deposit of at least a fifth of the property’s value, Halifax found.
The stamp duty holiday announced by the Chancellor last July and extended in this month’s Budget has helped drive up prices and spur activity in the housing market, but first-time buyers without larger deposits have been left out in the cold.
The Chancellor has attempted to rectify this by announcing a scheme which would appear to see the Treasury underwriting 95 per cent mortgages from some of Britain’s biggest lenders.
However, we won’t know what the interest rates, fees or other terms of the mortgages are until lenders start to launch them in April.
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