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Are Help to Buy: ISAs doomed to face more cuts?

Are Help to Buy: ISAs doomed to face more cuts?

Category: ISAs

Updated: 01/06/2016
First Published: 01/06/2016

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Help to Buy: ISAs, which were designed to boost the saving ambitions of would-be first-time buyers, have now been on the market for over six months. However, despite the excitement of their launch, our latest research can reveal that their shine has already begun to fade, with rate cuts and opening restrictions now commonplace.

Indeed, our data shows that the average rate paid by these accounts has already dropped from 2.55% to 2.39% since the start of the tax year (6 April 2016), with some providers cutting their rates significantly within that time.

For example, Halifax's offering launched onto the scene paying an impressive 4.00%, but this has now reduced to just 2.50%. Similarly, Santander attracted attention when it boosted its rate to 4.00%, but now it, too, has reduced the rate to 2.50% for eligible customers, and to just 2.00% for everyone else.

Santander isn't the only provider to offer ISAs with restrictions, either, with many of the best rates only available to customers in the local area. The table below shows the current Help to Buy: ISA market in more detail:

Provider As at 1 Dec 2015 (AER) As at 6 Apr 2016 (AER) As at 1 Jun 2016 (AER) Interest (1st year) 2016 (£3,400) compounded yearly
Aldermore 2.00% 2.00% 2.00% £45.92
Bank of Scotland 2.00% 2.00% 2.00% £45.92
Barclays Bank 2.27% 2.27% 2.27% £52.11
Buckinghamshire BS N/A 3.00% 3.00% £68.82
Chorley & District BS N/A 2.00% 2.00% £45.92
Clydesdale Bank 0.70% 2.00% 2.00% £45.92
Cumberland BS* N/A 4.00% 4.00% £91.69
Halifax 4.00% 4.00% 2.50% £57.38
HSBC 2.00% 2.00% 2.00% £45.92
Lloyds Bank 2.00% 2.00% 2.00% £45.92
Monmouthshire BS** N/A 2.10% 2.10% £48.21
Nationwide BS 2.00% 2.00% 2.00% £45.92
NatWest 2.00% 2.00% 2.00% £45.92
Newcastle BS 1.51% 1.51% 1.51% £34.69
Penrith BS* N/A 4.00% 4.00% £91.69
Progressive BS** N/A 2.75% 2.75% £63.10
Santander 1.50% 4.00% 2.00%*** £45.92
Tipton & Coseley BS* N/A 3.00% 3.00% £68.82
Ulster Bank 2.00% 2.00% 2.00% £45.92
Virgin Money 3.00% 3.00% 3.00% £68.82
Yorkshire Bank 0.70% 2.00% 2.00% £45.92
* Locals only
** Locals / existing customers
*** Pays 2.50% today for 123 World / Select customers

"The launch of Help to Buy: ISAs in December last year was a great boost for first-time buyers looking for a little help to build a deposit. Savvy savers who snapped up the best deals when the accounts launched or at the start of the 2016/17 tax year have been able to take advantage of top returns of 4.00% with a high street brand – a highly competitive rate that can go a long way to building that all-important deposit.It's disappointing to see that the market has taken such a turn, as Rachel Springall, finance expert at Moneyfacts, comments:

"However, those who waited to take out this kind of ISA until now may be disappointed by the deals on offer. Thanks to Halifax and Santander significantly cutting their rates within two weeks of one another, the only accounts now paying the top rate are the ones that are restricted to local or existing customers of the provider.

"It's not unsurprising to find that the rates paid on Help to Buy: ISAs are going the same way as other rates in the savings market: variable rates can change at any time and good deals can quickly become oversubscribed, which leads mutuals to restrict access. With this in mind, anyone who has yet to take advantage of one of these ISAs would be wise to move now in order to secure a good interest rate in addition to the 25% Government bonus towards their first home."

What next?

Help to Buy: ISAs could still prove to be an incredibly beneficial way to build up a deposit for your first home, not least because of the 25% Government bonus offered. Rates still tend to be higher than comparable accounts, too, so if you're thinking of buying your first home, make sure to check out the top Help to Buy: ISAs available to see if you can find the ideal solution.

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.