Help to Buy ISA returns halved
Nine banks and building societies have slashed the returns they pay on the Government-backed scheme since May.
First-time homebuyers using the Government’s Help to Buy ISA scheme have seen the rates they earn on their money cut by up to half.
Nine banks and building societies including Santander, Halifax, Lloyds, and Virgin Money have slashed the interest they pay on the accounts since May.
The Halifax has cut its rate twice, from 4 per cent in May to just 2 per cent now, while Santander customers have seen their rates fall to 1.5 per cent from the May value of 4 per cent.
The reductions follow the Bank of England’s decision to cut interest rates to a new record low in August.
But while the rate was reduced by 0.25 per cent, five lenders have cut their rates by more than this, with Progressive Building Society slashing the returns it pays on its Help to Buy ISA by 0.75 per cent at the beginning of September.
Halifax and Santander also reduced their rates in May, long before the cut in interest rates was predicted, suggesting they had been using higher rates to grab savers’ attention during the ‘marketing window’ in the initial months after the product was first announced.
Around 500,000 aspiring first-time buyers have taken out a Help to Buy ISA in a bid to buy their first home.
But not all of these will have been hit by the rate reductions, with both Halifax and Santander not passing on the cut to their existing customers.
However, some savers with variable rate Help to Buy ISAs have been affected and the downward trend in returns paid on the accounts is bad news for new savers hoping to take advantage of the scheme.
The fall in rates is just the latest disappointment for those participating in the Help To Buy scheme - George Osborne pledged that for every £200 first-time buyers saved, the Government would add another £50, up to a maximum of £3,000.
However, it recently emerged that the bonus would only be paid when a property sale was completed,, meaning that buyers could not put the money towards their initial deposit.
Shared-ownership properties are also exempt from the bonus if the value of the property exceeds the scheme’s limits,