It is the news that potential first time buyers have been waiting for, the launch of the Help to Buy ISA. Today we will explain what a Help to Buy ISA is, where the best deals are and how to maximise your saving power.
What is a Help to Buy ISA?
Help to Buy ISAs are a new government initiative, created to provide a tax free savings account for first-time buyers to save a deposit, boosted by a government bonus.
First time buyers can save up to £200 each month and the government provides a 25 per cent bonus on the interest and contributions once the product is closed.
However, the bonus is capped to a maximum of £3,000 so the maximum that can be saved to benefit from the bonus is £12,000.
On your very first deposit into the ISA you can add a one off extra £1,000, meaning your first contribution can be a maximum of £1,200, after that the maximum you can contribute monthly is £200.
You can use Help to Buy ISA savings to buy a home worth up to £250,000, or £450,000 in London. If you’re buying with someone else, you can open separate accounts and jointly earn a bonus of up to £6,000.
Best Help to Buy ISA deals so far
Many of the leading banks and building societies have signed up to the Help to Buy ISA. There are various options for savers, with different interest rates, cash back deals and upselling deals up for grabs. Here’s what is available so far:
Halifax Help to Buy Isa – 4% interest rate – best interest rate announced so far
With the highest interest rate announced so far, Halifax says savers depositing the maximum amount over five years can turn £13,000 of contributions into over £17,500 when buying a house (including the government bonus).
Virgin Money – 3% interest rate
Barclays Help to Buy Isa – 2.25% interest rate: launches 17 December. Customers can only open an account in branch or by telephone.
Aldermore Help to Buy Isa – 2% interest rate: customers who already have an Aldermore cash Isa can pay in to a Help to Buy Isa too.
HSBC Help to Buy Isa – 2% interest rate
Nationwide Help to Buy Isa – 2% interest rate: customers can pay into another Nationwide cash Isa in the same tax year. Cashback of up to £1,750 on offer for customers who take out a mortgage with Nationwide.
Natwest Help to Buy Isa – 2% interest rate
Santander Help to Buy Isa – 2% or 1.5% interest rate: Santander 123 World and Select customers will receive an interest rate of 2% while all other customers will get 1.5%.
Ulster Bank Help to Buy Isa – 2% interest rate
Lloyds Bank Help to Buy Isa – 2% interest rate
Bank of Scotland Help to Buy Isa – 2% interest rate
Newcastle Building Society Help to Buy Isa – 1.51% interest rate: (0.51% in any month you make a withdrawal or don’t pay anything in). You can also open a separate cash Isa alongside the Help to Buy Isa.
Clydesdale Bank Help to Buy Isa – 0.7% interest rate
Yorkshire Bank Help to Buy Isa – 0.7% interest rate
How do I get a Help to Buy ISA?
First-time buyers aged 16 and over qualify and are able to open a Help to Buy ISA. Throughout the process you will need to sign two declarations, one when you first open your account and then again when you apply for the government bonus, to confirm that you are a first time buyer.
You can open the account with an initial deposit of £1,200 in the first month. This includes the one off £1,000 contribution, plus the usual £200 monthly maximum payment.
You are not bound to pay the maximum monthly payment of £200 each month. The minimum bonus payment form the government is £400, so you would need to save at least £1,600 in your ISA before you can earn this.
If you have already opened and paid into a cash ISA within the 2015/16 tax year (which started on 6th April 2015), there is a good chance you would not be able to open a Help to Buy ISA until April 2016, as you can only pay in to one cash ISA per tax year. So far, only Nationwide and Aldermore are letting existing ISA customers also contribute to a Help to Buy ISA in the same tax year.
How can I maximise my savings?
If you are looking to buy on your own then opening up with the best possible interest rate would be the best piece of advice. As it stands that would be the Halifax’s 4% variable interest rate. As you are able to make a one off £1,000 contribution on top of the maximum £200 monthly contribution when first opening the ISA, it would be sensible to save the £1,000 first, if of course you don’t already have it. This way you’re getting to your end goal quicker and it all qualifies for the 25% government bonus top up.
If you are buying with your partner etc. then you can really take advantage of the government bonus. Open up a Help to Buy ISA each, again at the moment I personally would opt for the Halifax’s 4% interest rate. Save £200 each into your accounts, if you have managed to add the one off £1,000 each at the start by the end of the first year you will have saved £3,400 each. Add to that your 4% interest of £136 each plus your 25% government bonus of £884 each (only claimable once you buy a house), in year one alone you will have saved an impressive £8,840!
Now, here is where you can get really savvy. If you are able to save more than £200 each a month, and as discussed earlier you are unable to open up another cash ISA in the same tax year as you Help to Buy ISA, you can take advantage of the interest rates of current accounts currently available on the market.
The Santander 123 account offers 1% on balances of £1,000-£1,999, 2% on balances of £2,000-£2,999 and 3% on balances of £3,000-£20,000. You can also earn 1% cashback for paying your water, council tax bills by direct debit, 2% cashback on gas and electric bills if paying by direct debit and 3% cashback on mobile, home phone, broadband and paid for TV packages, if paid by direct debit.
These interest rates are far better than saving accounts at the moment and by using a current account to save you can really maximise your saving potential.