If you are a first-time buyer and are saving for your own home then a Help to Buy ISA is a must. You can earn up to 4% interest totally tax free and what’s more, the state will add a further 25% free cash on top of what you have saved to your pot.
Help to Buy ISA: What you need to know
You can deposit up to £1,200 in your first month, then a maximum of £200 a month after that
If you haven’t got £1,200 already saved when you are ready to open a Help to Buy ISA, you can deposit as much as you can and it will still work, and you keep contributing as long as the scheme lasts. If you miss a monthly contribution, it’s not a problem, but you cannot put it back – ie, you can only deposit £200 the next month.
If you think you are able to save more than the maximum monthly contribution of £200, you could be better off saving until you have the £1,200 to deposit to make sure you are taking full advantage of the state bonus.
If not, there is no time like the present so get saving it away; that way your money will start to earn interest straight away.
When you release the money from your Help to Buy ISA, the state will add a further 25% to bulk up your deposit
If you’re a first time buyer, putting your cash into a Help to Buy ISA before considering any other savings accounts is an absolute no brainer.
When you want to withdraw the money in your Help to Buy ISA to place down a deposit on your new home, all the money you have saved and the interest it has accrued will have 25% added to it, with a couple of exceptions:
- You need to have at least £1,600 saved before you qualify for the bonus – at this point you will be eligible for a £400 top up.
- The maximum bonus top up you can receive is £3,000. To do this you will had to have saved £12,000. If you have more than that saved, you still qualify for the bonus, you just won’t receive more than £3,000.
The bonus scheme is set to carry on through to December 2030 on Help to Buy ISA savings. If buying your house still seems a long way away, you could start saving small amounts now and let it add up over the next 14 years. However, with three general elections between now and 2030, you run the risk of a new government scrapping the bonus payments.
Any first-time buyer who is aged 16 and over can open a Help to Buy ISA
Anyone can get one, as long as you are sixteen years of age or over and are a first-time buyer. Even if you only see you buying a house in the future, it is worth starting saving what you can now, house prices, and therefore mortgage deposits, continue to increase.
If you open one between now and 2019, or you opened one when they launched in December 2015, you’ll get the bonus added as long as you use it for a deposit before the December 2030 deadline.
The definition of a first-time buyer is very clear so don’t be caught out. It’s someone who has never owned an interest in a residential property, whether it be inside or outside the UK. You are not eligible to apply if you have ever inherited a property.
Help to Buy ISA is an individual product
I’ll explain what I mean by that. Help to Buy ISAs are for individuals, it is not about who is buying the house, just whether you are a first-time buyer or not.
- If you’re a first-time buyer, buying with another first-time buyer, you can both open one. Together, you can save £400 a month and double up on the bonus payments.
- If you’re a first-time buyer, buying with someone who has previously owned a property, you can open one, they CAN’T!
You can use the bonus on properties under £250,000 (£450,000 in London) on any mortgage
The bonus is only available to homes under £250,000 – £450,000 in London. You are not restricted to buying a new build, you can buy any property as long as you’re buying with a mortgage. You do not qualify if you’re a cash buyer.
- You can use it with any type of mortgage, it doesn’t have to be used with a Help to Buy Mortgage – although you can if you wish – including shared ownership and self builds, but not buy-to-let.
- It doesn’t have to be your sole sole source of savings, you are able to use savings from other accounts.
- You have no obligation to apply for a mortgage with the same bank you opened your Help to Buy ISA with. Always shop around for the best deal when looking for your mortgage.
You can still rent out your property if you have used Help to Buy ISA as part of your mortgage deposit
Again, there are strict definitions and rules surrounding this, so be careful you don’t get caught out by not absorbing the full facts.
When you buy a home using a Help to buy ISA, you are required to sign a declaration to say you won’t rent out the property. You can understand why when the government are trying to encourage home-ownership, not helping landlords snap up many properties to build their property empire.
Obviously, this would be a disadvantage to those who may want to use the scheme, whose circumstances change dramatically a few years down the line. For instance, someone who has to work away for a couple of years. In this instance they would be allowed to rent out their home rather than forced to sell it.
However, if you’re a buying a property with the intention of being a buy-to-let landlord, this is not allowed and if caught out, the government will seek to recoup their bonus payment made to you.
You can only have one Help to Buy ISA, but can transfer it to chase better interest rates
Unlike a cash ISA, where you can open a new one each year, you can only ever have one Help to Buy ISA open at a time. But, you can continue to add to it each year until you withdraw it.
Although you can only have one Help to Buy ISA open at any one time, you can still transfer it to another provider to achieve a better interest rate. On that basis, it is important to keep a check on your interest rates, if you notice them dipping transfer to another provider so you’re always maximising your saving potential.
A solicitor has to claim to the bonus payment for you
When you are ready to buy your property, to get the bonus, you need to close down your ISA and transfer the funds to a separate account – you can transfer it to your solicitor’s account if you wish. Your ISA provider will then provide you with a closing letter which you need to give to your solicitor.
Your solicitor will use the letter to apply online for the government bonus. You can only use the bonus money for the mortgage deposit, not your home deposit. This means you can’t use the bonus payment towards the deposit you pay to the seller when you exchange contracts, it can only be used at completion.
Please be aware that with solicitors come costs. Due to the admin work involved your solicitor is allowed to charge you a maximum of £60 for their service (£50 + VAT).
You can take your money out whenever you want
If you decide against buying your own home, or the house you want to buy is out of the price range allowed for Help to Buy ISAs, you don’t lose your money. You can withdraw the money whenever you want, it will still be tax free and you will still get v the interest you’re due. However, you cannot claim the state bonus payment.
You are also permitted to make partial withdrawals whilst the ISA is open. Withdrawal rules can differ amongst providers so always check before you withdraw anything. You won’t be eligible for the state bonus payment on the amount you have withdrawn, but you can keep contributing afterwards and you can still claim the bonus on anything that is left when it comes to withdraw and put down your deposit.
This is why a Help to Buy ISA is so attractive to ALL savers. They come with higher interest rates than cash ISAs, so you can put your money in one just in case you decide to save for your first home and take advantage of the higher interest rates.
So there you have it. It’s certainly a product any first-time buyer should be jumping on.
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