Halifax move to cut Help to Buy Isa rate 'disappointing' for first-time buyers
Aspiring first-time buyers have been dealt a blow as a major bank chopped a previously market-leading rate on its Help to Buy Isa - prompting concerns that other providers may also cut their rates.
Halifax has cut the interest rate it is offering to new customers from 4% to 2.5% after seeing "unprecedented demand" for the accounts. Existing Help to Buy savers with Halifax will continue to get the 4% rate.
Launched in December 2015, Help to Buy Isas have been described as a "no-brainer" by experts, as they give people saving for a deposit for their first home a Government bonus of up to £3,000.
On top of getting a bonus, some of the interest rates on such deals have compared very well with those on standard cash Isas in the low interest rate environment.
According to website Moneyfacts.co.uk, the average Isa rate on offer for someone prepared to lock their money away for five years is now just 1.98%.
While people using a Help to Buy Isa are not obliged to also take out a mortgage with their provider when they eventually move onto the property ladder, many may well do so.
Rachel Springall, a spokeswoman for Moneyfacts, said: " It's too early to tell whether this drop is a signal for other providers to follow suit, so if anyone is hesitating on taking out a Help to Buy Isa, they may want to consider doing so soon."
She continued: "Halifax sat at the top of the tree with its 4% Help to Buy Isa since it launched five months ago but with a rate drop down to 2.5%, anyone still looking to take out a Help to Buy Isa would get a better rate with Santander paying 4%. Penrith Building Society also pays 4%."
Ms Springall said it is the first Help to Buy Isa rate drop she has seen, with many providers, including Santander, having increased the rates they are offering in recent months.
She said Halifax's rate cut will come as " extremely disappointing news" for first-time buyers who had not yet decided where to put their money, particularly as Halifax is a well-known high street brand.
A Halifax spokeswoman said: "From May 3, the rate for the Halifax Help to Buy Isa is 2.5% variable for new customers. Existing customers have not been affected by this change. We regularly review our savings range and make changes in line with the market and our competitors.
"As the brand to offer a significantly higher rate of interest than its competitors when Help to Buy Isa launched in December 2015, we have seen unprecedented demand. This change maintains the rate for existing customers."