MSE News: Budget 2015: Help to Buy ISAs to launch

Semple

agarnett wrote: »

snip

I'm actually a little confused by your spreadsheet, where has the monthly interest come from? The spec sheet does say these accounts can accrue interest depending on what the provider sets it to, but i would imagine this would only be paid yearly, and wouldn't affect the amount you're allowed to deposit into the account.

I would expect something like:

Initial Deposit + Monthly Deposit = £1,250 (invis bonus = £300)
Month / Balance / Invisible Bonus (Assuming £200 monthly deposits)
#1 £1,200 (£300)
#2 £1,400 (£350)
#3 £1,600 (£400)
..
#12 £3,400 (£850) + Compound Interest at say 1.2% = ~£27.74
#13 £3,627 (£900)
#14 £3,827 (£950)
..
#24 £5,884 (£1,450) + Compound Interest at 1.2% = ~£57
..
#36 £8,284 (£2,050) + Compound Interest at 1.2% = ~£86
..
#48 £10,770 (£2,650) + Compound Interest at 1.2% = ~£116
..
and so on.

The invisible bonus is never actually seen in the account, So while theoretically after 48 months your balance is ~£13,420, you only actually have ~£10,770 in there.

bryan475

Hello,
How would this work if people who are currently saving for a first time home? If someone had £15,000 already saved could they put it to this new isa account?

Semple

bryan475 wrote: »

Hello,
How would this work if people who are currently saving for a first time home? If someone had £15,000 already saved could they put it to this new isa account?

You're in the same boat as me. Unfortunately the HTB ISA won't allow transfers in, and will only allow the initial deposit + first month payment of £1,200. Meaning you'd need to find somewhere else to save the remaining £13,800 of your money. Even less if you're using this 15,000 balance to top up the HTB ISA.

As far as i can see we've only got 2 real options:
1) Don't sign up for a HTB ISA, and continue investing in a new ISA to take advantage of the 15,000 allowance. Bear in mind rates are shockingly low, so with 15k in a full year, you'd still only expect a return of £150-300 (1-2%).

2) Sign up for the HTB ISA, invest the full amount you're able to in the year £3,400 which will give a little less than £30 interest, but you'll have a bonus of £850 given to your mortgage lender when taking out a mortgage. Stick the rest in a high interest savings account, and accept the whack on the interest it earns. This will be more beneficial next April as you'll be able to earn £1,000 tax free on interest (if you're a 20% tax payer - £500 if you're 40%).

or 3) - If you were lucky enough to have a long term ISA that continues through this year, then you also have the option of leaving it there.

agarnett

Semple wrote: »

I'm actually a little confused by your spreadsheet, where has the monthly interest come from?

Sorry, Semple, I do have that effect sometimes

But seriously, I simply built a spreadsheet that enables me instantly to "try" a notional interest rate on the known pattern of maximum savings.

So instead of being blinded by the idea of "bonus", I have actually found the Annual Equivalent Rate (AER) of savings interest on the deal, prior of course to any interest given by the HTB ISA provider.

The magic *AER in my spreadsheet that turns the raw savings pattern (£1,000 deposit plus 55 x £200 pm) into £15K immediately after the final monthly savings instalment is 8.91%
[SIZE=-2](*I apologise for having said APR several times earlier but I think probably AER is the most useful name to give it) [/SIZE]

The spec sheet does say these accounts can accrue interest depending on what the provider sets it to ...

I am not sure where the spec sheet is you've found (can you tell us so we can all be on the same page and maybe create a link for everyone to check out?), but broadly yes I agree, but everything I have read [STRIKE]so far says you can't[/STRIKE] now including the MSE Q&A Sheet, suggests you can get a little more than £15,000 out for £12,000 in, depending on the underlying interest rate that the ISA provider offers.

I would expect something like: ...

I understand your desire to try to make sense of the invisible bonus, but respectfully, I still really think it is best for everyone to keep their eye on the real ball which I think is

• What pattern am I expected to adhere to when paying in?
• What's the most I get at the end?
• So what is the AER of such a deal?

Obviously if the deal was:

• Pay in £12,000 Day One
• Leave it 4 years 7 months untouched
• Draw out £15,000 at the end
• NB Don't forget *Penalty for not spending it on a house?

*"Aww - Unlucky - not everyone's a winner - You want your £15,000? - Aww - Bless! No sorry, we'll give you say £13,000 - thanks for trying! Have another go?"

... then the AER of such a fixed term deal (and of the loser penalty deal) would be useful to know. You'd make your decision largely based on the AER versus whether you could get a better one elsewhere and whether you can afford to keep the money tied up for nearly 5 years and then tied up in a house!

Naturally investing a lump £12,000 and getting £15,000 back after 4 years 7 months is a much lower AER than 8.91% (about 5% in fact).

I am not saying your way of looking at it is invalid, I am just saying that I think the weird "bonus" packaging the Chancellor has given this deal doesn't make it very clear for savvy savers to understand, and the first impression most get from that mysterious £3,000 dangled under their noses is that it is a much better deal than it really is.

That said, for some serious first time buyers, it'll be worth doing, and if the underlying interest rate for those that don't make it to the end (and suffer the "loser" penalty of only token low interest) is not too bad, then it might be ok for them too.

RobMoney

Definitely need to plan ahead with this one. I think it will benefit those that have a 5 year strategy (still remaining) on buying than those (like me) who want to buy more soon. Under 30's who haven't been saving much will benefit the most by opening up one of these.

I'll keep putting my £200 a month into a regular saver account like First Direct or HSBC to get 6% rather than this because I hope to buy before October, mostly due to fear or being priced out the market next year (let alone in 4 years time!). House prices went up 22% in my area last year (beds/bucks/herts) and although that's unlikely to happen again in a single year soon, I still want to get on the ladder ASAP as it will most likely save more than the £50 a month the government are waving about at us with this.

agarnett

I don't know when the MSE Q&A Sheet on HTB Isas appeared, but it does take us forward a little bit in trying to understand these things -

It seems that the underlying ISA level of interest marketed by each ISA provider will:

• be payable in addition to the maximum £3,000 bonus (which is good news to anyone who manages to save the maximum of £1,000 deposit plus 55 months at £200)
• be calculated at the time of house purchase based upon the cumulative savings plus accrued interest using the formula (£Savings + £Accrued ISA provider Interest) x £50/£200

and together this seems to mean that some savers will achieve the maximum bonus without having actually paid in a full £12,000 (they get there via interest accruing), so anyone who saved the maximum initial amount of £1,000 and has then been regularly and diligently saving the maximum £200 per month will actually qualify for the £3,000 maximum bonus a few* months earlier than 4 years 7 months.

* If the underlying provider ISA rate is for example 2%pa, then the qualifying £12,000 will be reached in month 53. At 3%pa it'll be reached in month 51.
And that latter example would make the whole deal worth a tax-free AER of 12.6% according to my infamous still suffering spreadsheet! But I bet no ISA provider will be offering terms as generous as that! However, it's a serious opportunity for a bank to announce something special and early - I would very much encourage HTB ISA providers to think about offering a generous underlying rate of interest, because coupled with the government's conditional bonus, which is really just a conditional enhanced rate, and ought to be marketed as such in my opinion, it would teach new young savers an absolutely fantastic lesson about the miracles of compounding in helping to achieve goals earlier than at first imagined!

Take that thought to the next level, it wasn't so long ago that the likes of First Direct were offering 8% on their Regular Saver contracts. Indeed only a short 7 years ago, HSBC branches were offering 10% for regular savers of £250 pm if I remember the large posters in the branch windows correctly!! It is all headline rate nonsense - it doesn't cost so much - it drives new business to the branches.

If they offered even 8%pa on one of these HTB ISAs then the qualifying £12,000 would be reachable in month 47 of saving, and coupled with the government's £3,000 bonus, the whole deal at that point would equate to an overall AER tax-free of pretty much 20% pa! Now that would indeed be worth shouting from the tree tops because it would help RobMoney above remain in sight of his local house price inflation levels!

C'mon HSBC! In 2008 you were the good guys, seemingly sitting pretty whilst almost all your competitors took big hits. But other truths have since come out meaning you have some ground to regain! Why not take a punt now, and do something gracious to redeem the sullied reputation?!

(if I have understood it all correctly )

omariqy

And what exactly can you buy for £250k in the south east? Answer - not a lot.

vladivar25

Hi all I'm really sorry if this is a daft question but currently I live in a council house with hopes of buying it in the future. I've never had a mortgage. Is this scheme something I could use or is it only for new buyers purchasing a property that is "normal/private" rather than council right to buy property? Many thanks

stinabean

Wow, lots of negative comments on this one!

To whoever said what can you buy for £250k in SE - not a lot.... actually quite a lot! I'm in the south east and there are 3 bedroom houses with own parking and good garden sizes for that, near good schools and public transport - I don't think it's really fair to rule out the entire South East because you may have more expensive tastes?

This is a perfect scheme for me and the other half to get on the property ladder. We can both sign up and make the max payments and have approx £24k between us as a deposit. For a first time buyer, that's a damn good deposit.

I know inflation will affect it and blah blah.. but it'd make us better off than not having it at all.

Rweller-hall

So if the government are contributing does this mean they own a percentage of your home? I've heard this but not sure if it's true and can't find where it says so anywhere I read about them?