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Help to Buy ISA ending soon

  1. 08 November 2019
  2. By Daisy Stephens

With the Help to Buy ISAs ending soon, we ask whether you should rush to open one, or whether there’s a better option?

The Help to Buy ISA will be coming to an end on 30th November 2019. If you open the account before that date, you’ll still be able to claim the government bonus. But with some issues having been highlighted about the Help to Buy ISA, is it really worth it?

Why should I get a Help to Buy ISA?

The Help to Buy ISA was brought in to support those wanting to get on the property ladder. If you’ve never owned a home, the ISA is designed to help you save for a deposit. You can open the account from as little as £1, and you can save up to £200 per month (apart from the first month where you can deposit £1000).

You’ll receive tax free interest and a 25% government bonus on your savings. You can receive a maximum  £3000 bonus, which will become available once you’ve bought your property.

What’s the downside?

There are a few issues with the Help to Buy ISA.
  • The property price limit
  • When you get the bonus
You can only use a Help to Buy ISA on a property worth up to £250,000, or up to £450,000 in London. This can cause problems if you happen to live in an expensive city that isn’t London, for example Cambridge. If you wouldn’t be able to find a property under £250,000, you can’t access the bonus.

Getting hold of the cash is another problem – your conveyancing solicitor needs to prove that you’re buying a property so that the government will release the bonus. This happens after completion on your property, meaning that the bonus can’t be used towards your deposit.

Of course, you can use the bonus for things once you’ve moved in to your property, and it’s still free cash, but considering the ISA has been designed to help first time buyers save a deposit, it’s a little misleading that the bonus can’t be used for the deposit at all.

Is it worth it?

It might be – if you’re planning on buying your first home in the next few years, and you’ve already been saving a deposit, making the most of the £200 per month allowance and getting the 25% bonus might be a good boost to your savings. Just make sure you’re buying in an area where the property is below the £250,000 bracket (£450,000 in London).

Is there a better option?

Around the same time as the Help to Buy ISAs came out, the Lifetime ISA also made an appearance.

It works in a similar way, in that you get a 25% bonus, but you don’t have the monthly £200 cap – you can save up to £4000 a year. This is great if you don’t always have a steady amount to put in every month, but can add a lump sum every now and then.

With the Lifetime ISA, you get the bonus paid into your account every year, so you can see it increasing. This means it’s accessible in your account, along with the rest of your money, and the bonus can pay towards your deposit. You will still need a solicitor to confirm you are using the money for a property purchase.

The Lifetime ISA can be used towards a property OR you can wait and use it as a boost in retirement.

What are the advantages of the Lifetime ISA?

  • The property price limit is £450,000 across the UK
  • You can earn a lot more in the bonus. If you paid in £4000 per year, you’d earn £1000 a year in bonus. This can continue up until your 50th birthday.
  • You can access the bonus immediately and use it as part of your deposit

Are there downsides?

They can only be opened to those between the ages of 18-40.

If you try to take out the money before retirement age, or for something that isn’t a property purchase, you will lose the bonus completely.

Is it worth it?

A Lifetime ISA is a great choice if you’re not quite ready to buy a property yet, but you’re putting away money towards a deposit. It can also continue to be used for saving once you’ve bought your property, as you can continue paying into it until your 50th birthday. For long term savers who want to save a bigger amount, and get a bigger return, the Lifetime ISA is a great choice. It may also be preferable to those who want to buy in more expensive cities (that aren’t London), where the lower Help to Buy ISA price cap (£250,000 instead of the Lifetime ISAs £450,000) might be limiting.
Have a look at our article for further comparison between the Help to Buy ISA and Lifetime ISA.

On 8th November Santander announced they are closing their Help To Buy ISA applications early. Any applications for Santander ISAs should be completed, and customers should have confirmation that their accounts have been opened, on or before Thursday 28 November. More information.

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