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What is the Help to Buy ISA?

If you’re trying to save for a deposit as a first time buyer, a Help to Buy ISA is a supported government scheme that rewards you for saving.

What is the Help to Buy ISA?

Who is it for?

Help to Buy ISAs are for first time buyers who are saving to get on the ladder. If you are buying with a friend or partner, you can each have a Help to Buy ISA and both benefit from the bonus you receive on your savings.

How does it work?

You can save up to £200 per month into you Help to Buy ISA (you can put in a lump sum of £1000 when you first open it). You’ll get a 25% bonus on your savings from the government.

This is only available to first time buyers who intend to live in their home. It can’t be used on a property you intend to let out.

There are also limits on the price of the property you can buy using the Help to Buy ISA. Outside of London, you can only choose a property up to the value of £250,000. In London, it’s £450,000.

You’ll need to open a Help to Buy ISA by the end of November 2019 and the bonus will have to claimed on the purchase of a property before 1st December 2030.

What’s good about it?

It’s free money! A 25% bonus on your savings per year can add up, and if you save the maximum amount, you can qualify for £3000 worth of bonuses. That would mean putting in the maximum amount (£1000 deposit and £200 per month) for 5 years.

You can easily get an account the same as any other bank account, and it’s easy to open it and start saving.

If you’re planning on buying with someone else, as long as you’re both first time buyers, you can each have an account – which means a potential £6000 extra towards your property.

Any downsides?

For some, saving £200 per month, even over 5 years and with the bonus, won’t be enough as a deposit. So you’d need to have a second account where you can save even more.

The account can hold up to £12,000 so the maximum you can gain in bonuses is £3000, compare to the Lifetime ISA, where you will keep earning until you reach the maximum age.

The property price limit can be problematic if you are aiming to buy in an area where average first time buyer properties are over £250,000. Similarly, if prices go up over time and you can’t get anything for under £250,000, you’ll find you can’t use the bonus.

The main issue with the Help to Buy ISA wasn’t discovered until recently. With most savers intending to use it to build a deposit, it was expected that the money (and the bonus) would be accessed early in the process by the conveyancing solicitor. However, this isn’t the case. In 2018, 45,000 Help to Buy ISA users found they couldn’t access the money until their purchase completed, leaving them scrabbling to borrow money for their deposit just before payment was due.

How do I get one?

You can get a Help to Buy ISA through many banks and other providers. It makes up part of your total ISA allowance. It’s also worth bearing in mind that in some instances you can’t set up a Help to Buy and Cash ISA in the same year.

How do I withdraw the bonus?

You will need to tell your bank/Help to Buy ISA provider that you wish to close the account and they will send you a closing letter. If you don’t have the closing letter, you won’t be eligible to get your bonus. You’ll then pass this letter on to your solicitor.

Your conveyancing solicitor will apply to withdraw the bonus when they close the account. In some cases there have been delays, so it’s worth making sure you have a significant amount of your deposit stored in another savings account.

What if I want to save more?

It might be that a Lifetime ISA is a better option for you. The Lifetime ISA also offers a bonus, but you can put in up to £4000 a year.  The property price limit is higher too – you can purchase up to £450,000 across the UK. There are some age restrictions though.
Learn more about the Lifetime ISA

NOTE: Please be aware that Help to Buy ISAs will not be available to open from 30th November 2019. If you have a Help to Buy ISA already, they will continue to function as usual.

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