The Autumn Statement Could Give FTBs a Massive Boost at Little Cost
Written on 25 October 2023 by
I note from The Times that The Chancellor is considering a package of support for FTBs (first-time buyers) for the Autumn Statement.
The Times is suggesting that the Government’s Mortgage Guarantee scheme, which gives lenders an option to buy insurance from the Government to insure mortgages of between 80% and 95% LTV up to £600,000, will be extended beyond the current end date of 31st December 2023. There are some private sector alternatives, and some lenders self-insure, but lenders currently using the Government scheme will welcome any extension, although as many mortgage offers are valid for 6 months any extension to the scheme should have been announced well before the Autumn Statement date of 22nd November.
The terms of the Help to Buy ISA and the LISA (Lifetime ISA) have not changed materially since their launches and a higher purchase price cap when using either is well overdue. Simple logic would suggest at the very minimum aligning the Help to Buy ISA limits with the LISA limit. However, these limits also need to be increased to recognise the change in property prices since the ISAs were introduced.
When potential FTBs start saving for their deposit they won't always know when they will end up buying and so there should be a single limit across the whole of Great Britain, as is currently the case with the LISA £450,000 limit. As the mortgage guarantee scheme is available for purchases up to £600,000 it would make sense for the maximum purchase price available with a Lifetime or Help to Buy ISA to be aligned with this and so also £600,000.
Finally, and more radically, the Government could provide a massive boost for potential FTBs by giving employees an option to have the minimum 8% of salary which currently has to be paid into a pension scheme paid instead into a LISA, with the contribution attracting the same tax benefits as if the savings had been paid into a pension fund - i.e. the employee’s contribution would be deducted from gross rather than net salary and the employee would not pay tax or National Insurance on the employer’s contribution. As with pension auto-enrolment, the employer would need to select a LISA provider, with participating providers accepting a single monthly payment from each employer to minimise administration.
Most employees choosing the Lifetime ISA option would probably only do so for a maximum of 5 years before switching their savings back to a pension, but in any case LISA savings can also be used as retirement income in the event that a property is not purchased.
The benefits offered by the LISA and the old Help to Buy ISA are disproportionately more valuable to FTBs who can’t also rely on financial help from the Bank of Mum and Dad (or Grandma and Grandad) and so any enhancement to the terms of these ISAs and/or increase in accessibility of the LISA will tend to reduce the social divide.
Improving FTBs' opportunities to own their homes will reduce the proportion of the population who become reluctant permanent renters and hence reduce the number of renters - with the associated huge cost - needing to claim long term housing benefit in retirement, and at a cost which is only a tiny fraction of the subsidy paid to purchasers using the Right to Buy scheme. Furthermore, unlike that scheme, it will not permanently remove social housing from the market!
Introducing an option giving employees a choice of how their mandatory 8% of salary savings are invested - in a LISA or a pension - would most definitely be a Long Term Decision for a Brighter Future (the Conservative’s 2023 Conference slogan) and I believe it would be popular not only with the younger voters who would be the primary beneficiaries, but also their parents.
Category: Ray Boulger
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