More first-time buyers may be getting on the ladder at the moment, but with house prices remaining high, those looking to get on the first rung are still faced with the daunting task of gathering together a substantial deposit. Unfortunately, it may be even harder thanks to savings rate cuts, and even the Government-backed Help to Buy ISA hasn't been immune.
Indeed, our latest research shows that the top-paying rates on these ISAs have been slashed by a whopping 1.73% since their launch in 2015, which means first-time buyers are likely to find it even more difficult to save. As the table below shows, the best Help to Buy ISA rate that's open to everyone clocks in at just 2.27%, a far cry from the 4% rate seen previously.
| Dec-15
| May-16 | May-17 |
| Top-Paying Help to Buy ISA* | 4.00% | 4.00% | 2.27% |
| Source: Moneyfacts.co.uk | Compiled 23.05.2017 |
Of course, it's never just been about the rate with these accounts – the Government bonus is still a vital incentive, with savers able to top up their pots by 25% when they're looking to buy their home – but "it is still terrible news that something that was designed to help people save towards a house deposit has seen interest rates cut so severely," said Charlotte Nelson, finance expert at moneyfacts.co.uk.
"For example, savers who have managed to put £1,200 in the top-paying Help to Buy ISA today would be £20.76 worse off than those who invested the same amount in the top-paying account back in December 2015, so savers are clearly losing out.
"Worse still, the Help to Buy ISA's replacement, the Lifetime ISA (LISA), has failed to take off in the cash ISA market, with all of the current limited offerings requiring investment in the stock market.
"A stocks and shares option may a great choice for those looking to use the LISA as part of their pension, as they may be more willing to take risks given the length of time they'll be saving. Savers who are aiming to use the pot for a house deposit, however, are less likely to want to take those risks with their capital, so the current lack of a cash option is a definite blow."
The LISA certainly hasn't had the impact that may have been hoped, with providers themselves just as cautious of them as savers are. As Charlotte points out, "with the average age of a first-time buyer increasing and the LISA's maximum age of 39, many savers who a looking to buy their first property feel like they have been cast aside, left to contend with the even lower rates in the standard savings market."
However, there is hope for those looking to take that first step. It will always be daunting trying to save up for that all-important first home, but it can be done, particularly when you consider the low deposit requirements that many mortgages come with.
"With more 95% mortgage products on the market it is definitely achievable," added Charlotte. "That said, those able to stretch to a 10% deposit could find the deals on the market significantly cheaper.
"Would-be borrowers will have to play the savings game to ensure they maximise their interest, not just by opting for a Help to Buy ISA or a LISA to get the Government bonus, but perhaps also by looking to local building societies for a mortgage saver that can give them access to additional benefits. They may further want to consider either a high interest current account or a regular saver, both of which pay some of the highest rates on the market."
What next?
Check out the Help to Buy ISA, and find out more about the Lifetime ISA, to see if either could be worth considering
Find the best savings rates across the rest of the market
Compare first-time buyer mortgages so you know the kind of rates you'll be dealing with
