Millions trapped in Help to Buy ISAs as house prices outstrip account allowances | Personal Finance | Finance

Millions of people could be trapped in Help To Buy (H2B) ISAs, with nearly 2.2 million currently open, new research has found.

A Freedom Of Information request made by the comparison site, Finder, found that these H2B ISAs currently hold a total value of almost £5.5 billion.

Previous research by Finder also found that the average house prices in 132 of 348 (38 percent) local authorities are currently above the current limit of £250,000.

This is projected to rise to over half (58 percent) of UK regions within four years at current rates. Since the H2B ISA was introduced in 2015, the average house price has increased by 38 percent, yet the limit has never increased.

It is no longer possible to open a H2B ISA, and they can no longer be paid into after 2029.

The Lifetime ISA (LISA) was effectively brought in to replace the H2B ISA and it helps resolve the property value issue with a house price limit of £450,000 across the UK.

You can also pay up to £4,000 a year into it per year as opposed to the £2,400 a year with a H2B ISA (both come with a 25 percent bonus).

It is not possible to combine a LISA and H2B ISA, meaning that someone wanting to take advantage of the LISA’s superior benefits would need to transfer their capital across.

However, you aren’t allowed to move it all across into a LISA at once. It is only possible to transfer up to £4,000 per year across, at the expense of adding fresh money into a LISA.

Sophie Barber, 27, from London, is someone who feels let down by the H2B ISA scheme: “I opened a Help to Buy ISA in 2016 to save towards buying my first home.

“House prices kept rising and I quickly realised the £250,000 limit would make it almost impossible to use the ISA in the area I wanted to buy. I decided to open a LISA as a replacement in 2021 but I’m angry that I have wasted my time completely with the Help to Buy ISA, with no bonus granted for the money I’d already saved in those 5 years.

“I’m also now restricted by putting £4,000 a year into the LISA so I can’t quickly build my savings in this account back up to the deposit contribution I’d already saved in the Help to Buy ISA.”

Matt Mckenna, personal finance expert at finder.com said: “It is hard to escape the feeling that the public are the ones being punished for the failings of the Help To Buy ISA being kept up to date, with billions of pounds left in limbo.

“The Lifetime ISA effectively superseded it and offers more opportunity to save each year, so why can’t people simply transfer their savings (and the bonus they were promised) into it?

“Finder is campaigning for Brits to be able to move their full H2B amounts into a LISA in one go, keeping the bonus they have accrued. This will ensure that around 2 million people with a H2B ISA can keep their much-needed government bonus and not lose ground in the long slog to save for their first property.”