The government will give a bonus of up to £3,000 to every person who opens a Help to Buy ISA and invests a total of £12,000 themselves.
The aim of the ISA is that once the bonus is added, you’ll end up with a savings pot of £15,000, equivalent to a 10% deposit on the average British home.
You must be 16 or over to open a Help to Buy ISA.
How Help to Buy ISAs work
You can save up to £200 a month into a Help to Buy ISA, and the government will top up your contributions by another 25%. That means every time you put £200 in, it’ll pay in another £50.
The most you can put into your Help to Buy ISA is £2,400 a year, although in the first year if you’re able to, you can start your Help to Buy ISA with an initial £1,000, onto which the government will add £250.
This means that the total you can contribute in year one is £3,400 and £2,400 in subsequent years.
The maximum amount the government will contribute is £3,000. You’ll only get this amount if you’ve paid in a total of £12,000.
The government bonus doesn’t get paid straight into your account. Instead, you’ll get a voucher for the bonus and this will go straight to your mortgage lender. If you decide not to buy a home after all, you won’t get the bonus. The offer is also only available to anyone buying their very first home.
Be aware that…
- You can only use your Help to Buy ISA for properties worth up to £450,000 in London, or £250,000 if you’re buying elsewhere in the UK. Properties can either be new-build or older.
- You don’t have to buy your home using a Help to Buy mortgage. You can use the money in your Help to Buy ISA as a deposit for any residential mortgage that you qualify for.
- You can open one Help to Buy ISA per person, so if you’re part of a couple saving to buy a property, you can have one each.
- The bonus will apply to both the amount you’ve put into the account, and any interest you’ve received. If interest takes you above the £12,000 maximum which the government will pay a bonus on, the bonus won’t be higher than £3,000.
- You can take money out of your Help to Buy ISA, but you won’t get the bonus on any money you’ve taken out.
The Help to Buy ISA has been generally welcomed, although critics claim it could push up house prices, making it harder to get on the property ladder.
There’s also the problem that while the bonus offered by the government will help you if you’re a first-time buyer, it’s still going to take a long time to save up a deposit.
If you put the maximum allowed into a Help to Buy ISA, you’ll have to save for four and half years to achieve your £15,000 deposit.
Other criticisms of the ISA include that it only allows savers to put their money into a cash account, and not stocks and shares.
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