The Help to Buy Individual Savings Account (ISA) provides a government cash bonus of up to £3,000, and aims to give a helping hand to first-time buyers struggling to get on the property ladder.
Here’s how it works…
What is the Help to Buy ISA?
Help to Buy ISAs were unveiled in the Chancellor’s March 2015 Budget. They were launched on December 1, 2015.
Like normal cash ISAs, they enable you to save tax-free, but they are specifically for first-time buyers.
The maximum you can save each month into a Help to Buy ISA is £200, although you can make an initial contribution of up to £1,200 in the first month if you can afford to.
You'll receive the government cash bonus when you reach the completion stage of buying your home and close down your ISA (more on this below).
How much will the government chip in?
The government will top up your contributions by 25%.
That means for every £200 you pay in, it will add another £50.
The maximum amount you can receive from the government is £3,000 and to get this amount you must have paid in a total of £12,000.
If you pay in £1,200 in the first month, as permitted, and then put in £200 a month, it will take four years and seven months to save £12,000, but you’ll end up with a total of £15,000 at the end of this period (£12,000 of your own savings plus the £3,000 government contribution).
You’ll only get a contribution from the government if you save at least £1,600 into a Help to Buy ISA, as the minimum bonus the government will pay is £400. You can do this within three months if you pay in the initial £1,200 in month one, and then £200 in months two and three.
Here’s how much bonus you can expect depending on the amount you save:
- Save £1,600 (the minimum to get a bonus) and you’ll get a £400 bonus added
- Save £2,000 and you’ll get a £500 bonus added
- Save £3,000 and you’ll get a £750 bonus added
- Save £4,000 and you’ll get a £1,000 bonus added
- Save £5,000 and you’ll get a £1,250 bonus added
- Save £6,000 and you’ll get a £1,500 bonus added
- Save £7,000 and you’ll get a £1,750 bonus added
- Save £8,000 and you’ll get a £2,000 bonus added
- Save £9,000 and you’ll get a £2,250 bonus added
- Save £10,000 and you’ll get a £2,500 bonus added
- Save £11,000 and you’ll get a £2,750 bonus added
- Save £12,000 and you’ll get a £3,000 (maximum) bonus added
Who is eligible?
You will qualify for the Help to Buy ISA if you are a first-time buyer aged 16 or over.
You can’t have previously owned a property, or a share of one.
Help to Buy ISAs can’t be opened jointly, but if you and a partner are saving for a property you can each open an account.
You can only put the proceeds of your Help to Buy ISA towards a property which costs £250,000 or less, or £450,000 if you are buying in London. You won’t be eligible if you are buying a property costing more than these limits.
Finally, you can’t open a cash ISA as well as a Help to Buy ISA in the same tax year. If you have opened a cash ISA since April 6, 2015, you will either need to withdraw the funds and then open a Help to Buy ISA. Or, if you have £1,200 or less in your cash ISA, transfer the balance to a Help to Buy ISA (partial ISA transfers are not allowed in the same tax year, so you’ll need to transfer the whole amount).
Where can I find Help to Buy ISAs?
You can find Help to Buy ISAs from banks and building societies, including Nationwide, NatWest, Santander, Virgin Money, Lloyds and Barclays.
Once you’ve opened one, make sure you regularly monitor the amount of interest you are earning.
If the interest rate drops, switch to a better paying Help to Buy ISA as soon as possible (ask your new bank to carry out the transfer for you – don’t do it yourself otherwise your cash will lose its tax-free status).
Do I have to use a Help to Buy mortgage if I have a Help to Buy ISA?
No, you can take out any kind of mortgage, as long as it is residential and not buy-to-let.
You don’t have to apply for a mortgage with the same bank or building society that you hold your Help to Buy ISA with either.
When do I get the government bonus?
You only get the bonus once you actually complete on buying your home and close the account.
However, be aware that when you buy a home you will usually have to put down two types of deposit.
When you exchange contracts, you will usually need to put down a deposit of 10% to secure the property. This will help to ensure the property is yours.
You can use the money you've saved in your Help to Buy ISA during this process, but you won't be able to use the bonus from the government as you won't receive it until you complete.
This could mean that you won't have sufficient funds in your Help to Buy ISA to pay for the 10% deposit. For example, if the home you're buying is worth £100,000 and you have £8,000 in your ISA, you could be relying on the bonus to boost your total savings to £10,000 and give you a 10% deposit.
If that's the case, it's worth asking the seller's solicitor if you can negotiate and pay a lower deposit initially - and then pay the remainder when you complete and receive the government bonus.
If the seller refuses, you'll need to find the additional funds from elsewhere and when you come to complete, you'll only be able to use the bonus towards your mortgage payments.
At completion, the money goes straight to your mortgage lender via the solicitor who is managing your conveyancing.
You won’t get a bonus if you decide that you don’t want to buy a home after all.
|Interest rate||Minimum deposit||Access||Allows ISA transfers in?||Penalty for withdrawals|
|Santander||1.50% AER (variable) (2.00% AER variable if you're a 123 World or Select customer)||£1||Branch and phone||Yes||None|
|Halifax||2.00% AER (variable)||£1||Online, branch and phone||Yes||None|
|Virgin Money||2.50% AER (variable)||£1||Online||Yes||None|
|Barclays||2.27% AER (variable)||£1||Online, branch and phone||Yes||None|
|Nationwide||2.00% AER (variable)||£1||Online, branch and app||Yes. Transfers from other Help to Buy ISA must be full transfers and the old account must be closed.||None|
|NatWest||2.00% AER (variable)||£1||Online, branch and phone||Yes. Transfers from other Help to Buy ISAs must be full transfers and the old account must be closed.||None|
|Aldermore||1.75% AER (variable)||£1||Online, phone and post||Yes||None|
|Lloyds Bank||2.00% AER (variable)||£1||Online, branch and phone||Yes, up to the initial deposit of £1,000. Transfers from other Help to Buy ISAs must be full transfers and the old account must be closed.||None|
|Bank of Scotland||2.00% AER (variable)||£1||Online, branch and phone||Yes, up to the initial deposit of £1,000. Transfers from other Help to Buy ISAs must be full transfers and the old account must be closed.||None|
|HSBC||2.00% AER (variable)||£1||Online, branch and phone||Yes||None|
|Newcastle Building Society||1.51% AER (variable)||£1||Online, branch and phone||Yes||None|
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