Today marks the launch of Help to Buy ISAs in the UK. The new savings account from the government is designed to help first-time buyers afford a home. The measure was announced in the March 2015 budget by Chancellor George Osborne and has been welcomed by the industry.
Mark Hayward, managing director, National Association of Estate Agents says: “The Help to Buy ISA – announced during the Chancellor’s March Budget is a great initiative and will provide a boost to first time buyers hoping to make the climb onto the property ladder.”
UK lenders have been unveiling their deals in the run-up to today’s launch, with Santander and Barclays paying 2 per cent and 2.25 per cent interest on ISA balances respectively. Nationwide is also offering 2 per cent, matching offers from Natwest and Lloyds Bank. Halifax, at the time of writing, is offering the highest interest rate of 4 per cent, followed by Virgin Money, with an interest rate of 3 per cent.
But how does it work? And how much help can you get? We explain everything you need to know in our Help to Buy ISA guide.
How does a Help to Buy ISA work?
Help to Buy ISAs are like a normal savings account, but the government will give account holders a 25 per cent cash boost towards buying their first home. This means that for every £200 they save, you get an additional £50.
What can I buy with it?
Help to Buy ISA bonuses can only be used to buy a home worth under £250,000. Within London, where homes are more expensive, that cap rises to a maximum of £450,000. The bonus can only go towards the purchase price of a home, not for any other expenses, such as legal fees – and, the government has made clear since August 2016, not towards a deposit.
How much can I save?
You can save a maximum of £200 a month – with the exception of your first month, when you can deposit up to £1,200. If you deposit the maximum amount, you will receive an additional £250 for the first month and then £50 for every following month. However, there is a minimum threshold for earning a bonus: you must save at least £1,600 to be eligible, which will give you the minimum bonus of £400. Any amount below that will not earn you a bonus. (Separate to the government contribution, you will also receive interest from your lender, as you would a standard ISA. See our round-up of rates above.)
Can I open more than one account?
No. Only one Help to Buy ISA is allowed per person. If you are buying a home with a friend or partner, you can open one account each. This also applies to standard cash ISAs: because the Help to buy ISA is treated as a normal ISA, you can only open one a year. (If you have already opened a cash ISA this year, you will have to wait until next year to open a Help to Buy account.)
Is there a limit on how much extra I can get?
Yes. The maximum the government will contribute towards your home purchase is £3,000. To reach this amount, you need to have deposited £12,000 in your Help to Buy ISA.
How long will it take to reach my maximum?
Including your first month’s payment of £1,200, presuming you make the maximum deposit ever month, it will take your 55 months to earn the maximum possible bonus your Help to Buy ISA: the equivalent of four and a half years.
When can I claim my extra money?
You can claim your extra money only when you purchase a house. When you purchase the property, your solicitor or conveyancer will apply for your bonus from the government, which will not paid out until the completion of the sale. You must be buying a home with a mortgage to be eligible for the bonus and your solicitor or conveyancer cannot charge more than £50+VAT to process your application.
Can I withdraw money from a Help to Buy ISA?
Yes, a Help to Buy ISA works like a normal ISA account: you can take out cash at any time, although the deposit limit of £200 will remain the same. For example, if you withdraw £50, but you have already deposited £200 in that month, you cannot put it straight back into the account.
Can I move my Help to Buy ISA between banks or building societies?
Yes. Your allowances – and government bonus – will remain the same.
Is there a time limit on getting, or claiming, a Help to Buy ISA?
You can open a Help to Buy ISA at any point up until 30th November 2019. After then, existing account holders have until 1st December 2030 to claim their bonus.
What happens if I fail to buy a home?
Property purchases aren’t always successful. If yours fails, even after you’ve claimed your bonus, you can re-open a Help to Buy: ISA and your bonus will be returned as a lump sum, regardless of the above deposit limits. This will be made possible by a purchase failure notification form, which you will receive from your solicitor, confirming to your lender the failed transaction and the balance of your ISA before it was closed.