In an expansion of the Help to Buy Scheme, the government are launching an ISA to help you save a deposit. This part of the scheme recognised that despite the high loan to value mortgage market working well, due to the success of Help to Buy, many are still unable to get on to the housing ladder because of the difficulties many households faced in being able to save up enough for a deposit. This, in turn, has been exacerbated by the fact that since the economic crash in 2008, returns on savings has been very poor.
At the beginning of this year, the government outlined the Help to Buy: ISA. First time buyers that choose to save through a Help to Buy: ISA will receive a government bonus to help boost their deposit.
So, How Does a Help to Buy: ISA Work?
From the 1st of December, first time buyers, or those who plan to be, will be able to open a Help to Buy: ISA. They are for individuals, not couples, so you can open one even if your partner isn’t a first time buyer, and you can have one each if you both are.
It will be available through banks and building societies, and it can be used for any property under £250,000 (£450,000 in London) and with any mortgage and any property.
You cannot use it for buy-to-let mortgages, however.
You can save up to £1,200 in the first month, then up to £200 after that. You can contribute less if the provider’s terms allow it. If you miss a contribution, you can’t make it up the next month, but it won’t affect anything.
When you use the ISA to buy your first home, you will get 25% of the money you’ve put in and the interest added to it. However, you need to have at least £1,600 saved in the ISA to get the bonus. The most you’ll get the bonus on is £12,000 (so you’ll get a £3,000 bonus). You can use the ISA to save more than that, but £3,000 is the most you’ll get as a bonus.
At the moment the scheme is set to pay out on bonuses until December 2030, but that doesn’t mean that the government won’t change its mind and stop paying bonuses.
You’re only allowed one Help to Buy Account over all, and you can’t contribute to a Help to Buy ISA and cash ISA in the same year. You can change your Help to Buy ISA according to provider, however, to make sure that you get the best interest rates.
The bonus is paid through your solicitor when you buy a house. You will close down your ISA, transfer your funds to another account, and you’ll get a closing letter. You’ll need to give this to your solicitor, who then uses this to apply online for the bonus, which they use, along with your other funds, as your deposit. However, your solicitor will charge for this service, up to £60.
If you don’t use the money to buy a property, you can take the money out. You won’t get the bonus but it will still be tax free and you’ll still get the interest you’ve earned.