Let’s face it, trying to get a foot onto the housing ladder in the UK can be difficult. To help first-time buyers achieve this goal, the government has launched a number of Help to Buy schemes, including the Help to Buy Individual Savings Account (ISA). These accounts are designed to provide you with a boost to your mortgage deposit savings. Under the scheme, the government will add 25 per cent to your savings - up to a maximum contribution of £3,000.
Keep reading to find out more about how this scheme works, the benefits of using it and whether you may be eligible for one of these accounts.
How does a Help to Buy ISA work?
Help to Buy ISAs are available from a variety of banks, credit unions and building societies. You will need to make a deposit in order to open your account, and the maximum amount you can contribute in your first payment is £1,200. After this, you’re allowed to transfer up to £200 a month into your ISA.
The minimum bonus available from the government is £400, so bear in mind that you must save at least £1,600 before you can claim any money under the scheme. To receive the biggest possible government contribution of £3,000, you’ll need to save £12,000. If you start off with the maximum deposit and save £200 each month, this will take you just over four and a half years.
Help to Buy ISAs are open to each first-time home purchaser, not each household. This means that if you plan to buy a home with your partner, for example, you could both benefit from the government bonus of up to £3,000 - so you could receive a combined total of £6,000.
It’s important to be aware that the government bonus will be paid when you buy your home, so don’t expect the money to be added to your account before this point. When you’re getting ready to buy your first home, you will instruct your conveyancer or solicitor to apply for the government bonus on your behalf. Once they receive this money, it will be added to your existing savings.
The bonus has to be included with the funds used to complete the property transaction. It can’t be used to pay the deposit due when you exchange contracts or to pay for estate agent’s fees, solicitor’s fees or any other costs associated with buying a home.
When you make a mortgage application, the lender will factor in the money you are due to receive as a government bonus when they are calculating the amount they are prepared to lend to you.
Do I qualify for a Help to Buy ISA?
In order to qualify for one of these accounts, you must be a UK resident and aged 16 or over. You must also have a valid National Insurance number, be a first-time buyer and not own a home anywhere in the world.
You can only use the scheme to purchase homes worth under £250,000 (or £450,000 if you’re buying in London), and these ISAs are not intended to help you buy a home that you plan to rent out.
Also, you can’t open more than one Help to Buy ISA. And, if you have paid money into a normal cash ISA this tax year and you want to open a Help to Buy ISA, you will need to transfer your cash ISA to a Help to Buy ISA. You’re allowed to transfer up to £1,200 in this way. Any money above this should be shifted into a stocks and shares ISA, Lifetime ISA, Innovative Finance ISA or a non-ISA savings product.
How do I use a Help to Buy ISA?
If you’re wondering how to claim a Help to Buy ISA, your first step is to apply for an account with a bank, building society or credit union that offers these products. The interest rates available on these accounts differ and are set by each individual provider, so it pays to shop around to find the best deal. Price comparison websites can be a good place to start.
Be aware that you have the freedom to switch between providers whenever you like in search of the best interest rates. The rules for transferring between providers are the same as for cash ISAs. This means you’ll need to make sure you go through the proper procedure so that you don’t accidentally withdraw your money instead of transferring it.
When it comes to claiming your government bonus, you must do this through your conveyancer or solicitor when you’re buying a home. This happens after the exchange of contracts but before completion. If you get the timing wrong, you could miss out on the government contribution. So, make sure you instruct your legal representative to apply for this money as soon as your offer has been accepted.
When is the Help to Buy ISA end date?
Help to Buy ISAs will be available up to 30 November 2019. After this, the accounts will no longer be accessible to new savers. However, as long as you open your ISA prior to this date, you will be able to keep saving into your account. You will have to claim your bonus by 1 December 2030 though.
Are Help to Buy ISAs worth it?
Help to Buy ISAs aren’t right for all first-time buyers, but they can be extremely helpful to many. The amount you’re able to save in these account each year is considerably less than it is in a cash ISA (which has a limit of £20,000 in the tax year 2018-19). However, the 25 per cent bonus that you are awarded by the government is well above the interest you would earn in a regular cash ISA.
Also, opening a Help to Buy ISA doesn’t mean you are restricted to saving a maximum of £200 a month towards your first home. You can put money into a top rate savings account in addition to contributing to your Help to Buy ISA, meaning you can build your deposit up more quickly.
Given that this government scheme is time-limited, it’s well worth thinking about setting one of these accounts up sooner rather than later. You may find that it makes a big difference to your ability to save and it could help you to take that all-important first step onto the property ladder much sooner.
As with any financial product, make sure you read the terms and conditions of these accounts carefully before you make a final decision. If you would like further information or advice about these ISAs, or the other government Help to Buy schemes available, don’t hesitate to contact our team.