Please note that the Help to Buy ISA scheme closed to new accounts on 30 November 2019. If you had already opened a Help to Buy ISA before 30 November 2019 you can continue saving into your account until November 2029. View our latest article on ISAs here.
Help to Buy ISAs are a new type of ISA designed to help first-time buyers save up a deposit for their home. The government will add 25% to your savings, up to a maximum of £3,000 on savings of £12,000. Find out how Help to Buy ISAs work and who qualifies.
What is a Help to Buy ISA?
A Help to Buy ISA is a government scheme designed to help you save for a mortgage deposit to buy a home. To qualify you must be classified as a first-time buyer and not own a property anywhere in the world.
Savings are tax free just like with any ISA product, however, a Help to Buy ISA gives you the added bonus of getting government contributions.
How do Help to Buy ISAs work?
The government will top up any contributions you make by 25%, up to the contribution limit of £12,000. So, for every £200 you save, the government will contribute £50. This means you can earn a maximum of £3,000 from the government.
The minimum amount you need to save to qualify for a government bonus is £1,600 (which gives you a £400 bonus).
You can start off your ISA with an initial deposit of up to £1,000 which also qualifies for the 25% boost from the government.
Help to Buy ISAs are available to each first-time buyer, not each home. So, if you’re buying a property with your partner, for example, you’ll be able to get up to £6,000 towards your deposit.
When your solicitor or conveyancer should apply
Instruct your solicitor or conveyancer to apply for your government bonus once your offer has been accepted. Don’t wait until completion as this will be too late.
Once they receive the government bonus, it will be added to the money you’re putting towards your first home.
Will my bonus contribute towards the deposit to buy my home?
Yes, the government bonus will be added towards your overall deposit.
When calculating your mortgage, your lender will want evidence of the funds you have available. This will include the amount that has been saved into your Help to Buy ISA. Your lender will then include the amount of your government bonus when working out your mortgage loan amount.
- You need to be a first-time buyer.
- You must be aged 16 or over.
- You can use it to buy any home worth under £250,000 (or under £450,000 in London).
- You can use a Help to Buy ISA with any mortgage; you’re not restricted to a Help to Buy mortgage.
- You can’t use a Help to Buy ISA if you’re going to rent out the property.
- You can’t use a Help to Buy ISA on an overseas property.
- You can’t have more than one Help to Buy ISA.
- You can’t open a Help to Buy ISA and a normal Cash ISA in the same tax year*.
*Some providers will let you save into a cash ISA and a Help to Buy ISA within the same ISA wrapper. However, the standard cash ISA and Help to Buy ISA allowance limits will still apply.
When are Help to Buy ISAs available?
Help to Buy ISAs have been available since 1 December 2015.
How soon can you get the money?
Once your savings have reached the minimum amount (£1,600) you can claim your government bonus at any time.
If you want to qualify for the maximum bonus of £3,000 it will take just over four and a half years.
It’s worth noting that you need to claim your bonus through your solicitor or conveyancer before completion, but after exchange of contracts, which might be subject to a maximum fee of £50 plus VAT.
How the figures add up if you save the maximum allowed under the scheme
Maximum contributionRunning totalInitial deposit£1,000£1,000Year 1£2,400 (£200/month)£3,400 + interestYear 2£2,400 (£200/month)£5,800 + interestYear 3£2,400 (£200/month)£8,200 + interestYear 4£2,400 (£200/month)£10,600 + interestYear 5£200/month until you reach £12,000£12,000Government bonus£3,000£15,000Grand total£15,000
Interest on your Help to Buy ISA
The interest rates on Help to Buy ISAs will vary and will be set by each provider.
You won’t earn interest on your government bonus because you don’t actually get the money until you buy your property.
When you get your bonus it’s calculated using the money you’ve saved and the interest that has built up while your account has been open.
Opening a Help to Buy ISA
You can apply for a Help to Buy ISA through a bank or building society either online, by telephone or in a branch.
We recommend the following websites for comparing Help to Buy ISAs:
Switching providers for your Help to Buy ISA
You’ll be able to switch from one provider to another whenever you like and as interest rates change in order to get the best deal.
The rules for transferring will be the same as for Cash ISAs.
Make sure you do this carefully so you don’t accidentally withdraw the money rather than transferring it.
Check the rules for transferring your savings from one Help to Buy ISA into another in our guide Cash ISAs.
How long are Help to Buy ISAs available?
Help to Buy ISAs are available from 1 December 2015 to 30 November 2019.
They won’t be available to new savers after that date, but if you opened your Help to Buy ISA before then you can keep saving into your account.
You must claim your bonus by 1 December 2030.
Is a Help to Buy ISA right for you?
Although the amount you can save each year in a Help to Buy ISA (£2,400 + the initial deposit) is a lot less than in a Cash ISA (£20,000 in 2017-18) the 25% boost offered by the government is much higher than you’d earn in interest alone.
It’s also worth bearing in mind that from 2016, if you’re a basic rate taxpayer, you’ll be able to earn tax-free interest up to £1,000 in a normal savings account (or up to £500 if you pay higher rate tax).
So if you want to save more than the maximum £200 per month, you might consider saving into a top rate savings account alongside your Help to Buy ISA.
I already have a cash ISA – can I open a Help to Buy ISA?
If you paid into a cash ISA and want to open a Help to Buy ISA in the same tax year, you need to transfer your active cash ISA to a Help to Buy ISA.
You can transfer up to £1,200 of your active cash ISA balance into your Help to Buy ISA.
Anything more than this should be moved into either a stocks and shares ISA or a non-ISA account, where you will lose the tax benefits.
The standard cash ISA and Help to Buy ISA allowance limits will still apply.
Syndicated with permission, original article at https://www.moneyadviceservice.org.uk/en/articles/a-guide-to-help-to-buy-isas