A government-promoted savings account taken out by more than 500,000 aspiring first-time buyers has been dubbed a “sham” that has betrayed young people hoping for their first step on the property ladder.
The help-to-buy Isa pays a 25% government bonus of up to £3,000 towards a deposit. But it has emerged that this is not paid until a property sale is completed, and so cannot be used to the initial deposit demanded by mortgage lenders.
Labour MP David Lammy said: “Young people and all those saving in the hope of one day owning their own home have got every right to feel betrayed and conned by the government.
“Payment of a 25% bonus upon completion of the purchase of a home will only help those lucky enough to be able to already afford a deposit and will do nothing whatsoever to help those who are priced out of ever getting on the housing ladder.”
Labour said that more than £2m has been wasted by the government advertising a “misleading” Isa deal.
The scheme was launched in the 2015 budget, with the then chancellor, George Osborne, saying it would help first-time buyers tackle the “high deposits required by the banks”.
Rebecca Long-Bailey MP, Labour’s shadow chief secretary to the Treasury, said: “Over the weekend we learned that over £9bn goes into the pockets of private landlords when instead we should be building council houses and it was also revealed that the Tory Isa for first-time buyers was a sham.
“Adding insult to injury we learn the Tories have blown millions of taxpayers’ money on advertising the first-time buyer sham. Young people struggling to get on the housing ladder deserve better than this.”
Financial advisers said the help-to-buy Isas have, until now, been hugely popular among potential young buyers, with over 500,000 accounts. But they said many will now be sorely disappointed they can’t access the cash bonus until it is too late.
Hargreaves Lansdown’s Danny Cox said: “Clearly saving for property with the added bonus from the government is an incentive which works, though now it looks like many of these savers are going to feel disappointed by a rule which prohibits them from getting their government bonus until after they have completed their house purchase.”
However, a Treasury spokesperson defended the scheme, saying the £3,000 bonus is included as part of the overall deposit and taken into account by lenders when deciding on the loan-to-value ratio.
“This government is committed to helping those who aspire to buy their own homes, and that’s why we have made sure they are aware that they can receive a government bonus of up to £3,000 if they save into a help to buy Isa. Since its launch more than half a million people have made use of the scheme, with over 22,000 already receiving their bonus.”
Britain’s housing crisis has become one of the key policy areas in the Labour party leadership battle, and formed a central plank in Theresa May’s bid to become prime minister.
Jeremy Corbyn has argued for a cap on private rent levels, more council housing and an end to “social cleansing” he argues has resulted from benefit caps and housing sell-offs.
He has also put forward his own plan to extend the right-to-buy scheme to the private rented sector. He has suggested funding subsidised mortgages for private tenants by withdrawing £14bn of tax allowances that were at the time given to buy-to-let landlords.
Owen Smith has pledged that a government under his control would build 300,000 homes in every year of the next parliament, equal to 1.5m over five years.
When May launched her campaign for leadership of the Conservative party she promised: “We need to do far more to get more houses built. Because unless we deal with the housing deficit, we will see house prices keep on rising.”
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