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Help to Buy ISA – explained

All your questions answered about the new Help to Buy ISA

Help to Buy ISA – what is it?

  • The  Help to Buy ISA is only available to first-time buyers trying to save for a deposit to buy a property.
  • For every £200 deposited into the account, the government will add £50. That’s an extra 25% of tax-free savings.
  • Savers who put away £12,000 could stand to make as much as £3,000
  • The aim of the scheme is to help tackle the crisis in homeownership, in particular to help those struggling to save enough to get a foot on the housing ladder

Can I get a Help to Buy ISA now?

  • Yes. The scheme went live on 1 December 2015. Once you open an account, there’s no limit on how long you can save for. But the scheme will close to new entrants from 30 November 2019 and the bonus must be claimed, through the purchase of a property,  by 1 December 2030

How does it work?

  • The Help to Buy ISA is available through banks and building societies.
  • As well as the government’s 25% bonus you will earn interest just as you would with any other cash ISA – so shop around for the best rates. And remember you can switch if you find a more competitive rate.

What are the criteria?

  • You must be a UK resident, over 16 years of age and buying a property in the UK for the first time to open an account.
  • The property can not be for the buy-to-let market.
  • The cost of the home must not exceed £250,000 unless the property is in London, where the limit is £450,000.
  • You can only hold one Help to Buy ISA. You can continue to hold existing ISAs but you can’t open a Cash ISA and a Help to Buy ISA in the same tax year.

How much can I save?

  • You can make a deposit of £1,000 when you open an account
  • There is no minimum monthly deposit – but the maximum amount you can save a month is £200
  • To get the bonus you need to have saved a minimum of £1,600
  • The maximum bonus you can receive is £3000 (for which you would have saved £12,000)

How do I get the bonus?

  • If you don’t buy a home you won’t get the bonus.
  • First-time buyers will be able to access their bonus once they buy their first home.
  • Needless to say you won’t receive a cheque in the post from the Treasury! Any cash bonus you have qualified for will be paid straight to your conveyancing solicitor when you buy the property.
  • While you’ll earn interest on your ISA savings you won’t earn interest on the bonus as it will never sit in your account.
  • The minimum bonus size is £400 per person, while the maximum is £3,000 per person.
  • Let your conveyancing solicitor know you are buying with a Help to Buy ISA as they may levy a charge for the administration work involved.

Is it only for new build homes?

  • No it’s available to all homes costing up to £450,000 in London, and £250,000 outside the capital.

Can my partner and I both get one?

  • Accounts are available one per person – so couples or friends buying together could each get a bonus.

Can I spend my Help to Buy ISA savings on something else?

  • If you don’t buy a home you won’t get the bonus. The bonus you get depends on how much you have saved when you go to purchase a property. Withdrawing cash will therefore impact on the final bonus

Can I use my Help to Buy ISA savings as a deposit on a property?

  • No you can’t. This is something that has been the subject of some controversy as it was originally thought that the initiative would help struggling first time buyers to raise a deposit. Instead the savings will be added to the mortgage funds on completion.

What happens if the house I am buying with my ISA falls through?

  • The bonus will be handled by your solicitor or conveyancer who applies for the bonus on your behalf. If the purchase falls through, your conveyancing solicitor would have to ensure the bonus is paid back.

Is this Help to Buy ISA good news?

  • While the Help to Buy ISA won’t help a first time buyer when it comes to saving for a deposit it will help to reduce the overall amount they need to borrow so this is still good news. By reducing the amount you need to borrow you’ll be able access to better mortgage rates and have lower monthly repayments.
  • There are some competitive rates available on Help to Buy ISAs so it is definitely worth shopping around.
  • It worth noting, however, that there is no guarantee that future governments will maintain the ISA offer, meaning there is a risk to bonuses.

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