Brits save almost £120bn in ISAs to help fund home purchases – three quarters of which are made by first-time buyers

  • UK savers have used £119 billion of ISA savings over the past 21 years to help buy a home

  • First-time buyers have benefited most from the tax-efficient savings vehicles, with nearly three quarters (73%) of these individuals saying the money was used to help buy their first home

  • The average value of ISA savings channelled towards buying a house was £19,751

  • Number of cash ISAs collapsing as stocks and shares ISAs gain

British savers have accrued a staggering £119 billion in ISAs in the past 21 years that has been directed towards buying a home, new research from Scottish Friendly reveals.

Since the tax-efficient savings vehicles were first launched in 1999, 4.4 million individuals have used savings held in ISAs to help purchase a property. .

The average value of ISA savings channelled towards buying a house was £19,751 – adding up to more than £87 billion, the analysis conducted by the Centre for Economics and Business Research (Cebr) on behalf of Scottish Friendly found.

However, the research also considers parents’ ISA savings which have been used to help a child purchase a home, which means the total sum rises to nearly £120 billion.

This figure is more than the total value of Northern Ireland’s entire housing stock, which is currently estimated to be worth £106 billion .

Nearly three quarters (73%) of these ISA savers indicated that the money was used to help buy their first home.

But the general popularity of ISAs remains in decline, despite the important role they have played in supporting homebuyers.

Overall the number of adults with either a cash or a stocks and shares ISA fell by nearly 1 million to 21.2 million between the 2015-16 financial year and 2016-17.

The number of individuals with a stocks and shares ISA increased by more than 770,000 to 3.3 million but there was a sharp decline in the number of individuals with cash ISAs.

The drop in the number of cash ISA holders could be indicative of the significant fall in the real returns from cash accounts during this period.

A survey of 4,000 people that was carried out on behalf of Scottish Friendly as part of the study found an equal proportion of savers (21%) are using a cash ISA or stocks ISA to help towards buying a house.

However, cash ISA savers could find it takes them significantly longer to reach their savings goal than individuals using a stocks and share ISA.

Analysis conducted by the Cebr reveals a cash ISA holder who had utilised their full ISA allowance each year from 1999 to present would have generated a total of £23,245 of tax-free interest.

In contrast, a saver who instead opted to invest their money in the FTSE All-Share Index through a stocks and shares ISA with average annual charges of 1.4% would have accrued a total of £98,934 – more than four times the amount of a cash ISA saver.

Kevin Brown, savings specialist at Scottish Friendly, said:

ISAs have given millions of people, particularly first-time buyers, the opportunity to realise their dream of buying a home.

During the past 21 years, savers have accrued billions of pounds in ISAs that have been used towards house purchases and many other goals, such as holidays, weddings, home improvements and early-retirement.

That so many people use tax-efficient ISAs to build savings up towards the purchase of a property, and saving more generally, is testament to the ISA as a national savings institution that has truly come of age.

But the latest figures show that the popularity of ISAs is dropping, which could be down to rates on many secure cash accounts continuing to slide. Demand for stocks and shares ISAs continues to rise, but on the whole fewer people are taking advantage of tax-efficient saving and investing.

As the ISA now enters its ‘adult years’, our analysis also shows that over the past 21 years, stocks and shares ISAs have on average provided greater returns than secure cash ISAs.

If you are saving for a long-term goal, such as a house deposit or retirement, then you may want to look beyond just cash accounts as stocks and shares could potentially help you to achieve your target sooner.

Of course, history doesn’t provide us with certainty to make future decisions and you must remember that the value of investments can go down as well as up and you could get back less than you paid in.

Research released by Savills on 13th January 2020

Survey of 4,000 consumers conducted by 3Gem Research & Insights between 19/02/20 – 02/03/20

* Tax treatment depends on individual circumstances which can change in the future.