How do you save alongside a Help to Buy ISA

Preparing to buy your first home often requires months or years of dedicated saving, with many would-be homeowners using Help to Buy ISAs to do so. While you’re focused on that all-important deposit, saving for anything else can seem unimportant. However, having an additional nest egg ready could come in extremely handy for when you finally get those keys.

Why save alongside a Help to Buy ISA?

Buying your first house or apartment is a huge milestone, which means it’s a common goal for many people. Although purchasing your own home is undoubtedly a significant achievement, don’t forget about everything else that lies ahead.

When you’ve eventually saved up enough for your housing deposit and you’ve found a property you’d like to buy, there will be other costs to start thinking about. Conveyancing, surveys and moving vans all cost money, not to mention any renovations or surprise repairs after you move in. Wouldn’t it be useful to have a little extra to help out with any additional expenses?

If you’ve got all of your homebuyer’s costs covered, you have the opportunity to look further ahead.

Putting a little aside for the future, on top of saving for a home, will help you tackle anything life throws at you.

So, how do you save alongside a Help to Buy ISA?

What is a Help to Buy ISA?

Before going any further, it’s important to note that you can no longer open a Help to Buy ISA. The scheme was closed to new applications in November 2019. However, those who opened an account before the deadline can still keep saving up until November 2029.

A Help to Buy ISA is a scheme devised by the government in order to help first-time buyers with the purchase of a home. The main benefit of this type of ISA is the government bonus entitlement; this means that the government will top up whatever you save by 25% (with a £400 minimum bonus, up to a maximum of £3,000). This bonus will be put towards the purchase of your home, it’s not a cash bonus.

The rules dictate that you can only have one ISA per person, and one person per ISA. That being said, if you’re buying a property with someone else and they also have a Help to Buy ISA, you can both claim your government bonuses and put the total amount toward the cost of the home.

Missed out? Other options to save for your first home

If you missed the deadline to take out a Help to Buy ISA, don’t worry! There are still plenty of ways that you can save for your first home.

The most similar product to the Help to Buy ISA is a Lifetime ISA (LISA), which effectively replaced it. This type of savings account also offers a government bonus on what you save, but there are some differences. Where the Help to Buy ISA served one purpose (helping you to purchase a home), a LISA can serve one of two purposes. The first is to support you with buying your first home, the second is to help with your retirement. You also have the potential to save more and therefore get a larger government bonus, as you are able to save up to £4,000 per year, compared to the Help to Buy ISA’s upper savings limit of £200 per month.

Unlike with a Help to Buy ISA where the government bonus is only available after completion, the LISA bonus can be claimed and put towards your deposit, as it is paid into your account monthly. You cannot claim your bonus if you withdraw for any other reason than buying a home or retirement (after the age of 60).

You can also explore other types of savings accounts, such as Cash ISAs and Stocks and Shares ISAs to give your deposit an added boost.

Options for saving alongside a Help to Buy ISA

You may or may not know that, when it comes to ISAs, there are a few rules to bear in mind. For instance, if you have a Help to Buy ISA, you’ll know that you can only save up to £200 a month. However, do you know that you are only allowed to have certain types of ISAs alongside your Help to Buy ISA?

According to ISA rules, you can only have one of each during any given tax year. These ISA types are Cash ISAs, Stocks and Shares ISAs, Lifetime ISAs and Innovative Finance ISAs. A Help to Buy ISA is a Cash ISA, which means that you cannot save into another Cash ISA at the same time. However, you can save with a Stocks & Shares ISA, giving you another tax-exempt way to save all the way up to your annual ISA allowance of £20,000 – without breaking the rules.

While you can have a Lifetime ISA as well as a Help to Buy ISA, you can only claim your government bonus from one of them when buying your first home. So, if you choose to save in this manner, it’s probably best to save your LISA for retirement.

How to make it happen

While saving, it’s quite normal to make some sacrifices in order to put money aside, but you should only save what you can afford. There’s not much point in saving for a home or towards your future, if it will mean that you can’t get by financially in the present.

If you don’t know where to start or are unsure about how to save extra on top of your Help to Buy ISA (or Lifetime ISA), it’s wise to get a real understanding of where your money goes on a monthly basis. Look at your essential expenses and try to identify where you may need to cut back a little.

For instance, are there any subscriptions you’re not using? Are you perhaps spending too much on things like clothes, coffees or eating out? Saving often requires a little restraint, so allow yourself a set amount of money to spend on non-essentials and entertainment and be strict in making sure you don’t exceed it. This will allow you to create a realistic budget for yourself and you can then put what’s leftover in your savings.

If you’re saving for your first home, it’s likely that you’ll want to put as much money towards that goal as possible. But, remember, there are a lot of other things that are also worth saving for, even if they’re not your main priority right now. So, take a look at the total amount you’re able to save a month (or at your lump sum, if that’s what you have) and see if there is any way you can take a portion of this and save it for your future beyond homebuying.

Even if you only save a small amount alongside your Help to Buy ISA or LISA, it all starts to add up. Plus, you’ll be making the most of any growth and putting your annual ISA allowance to good use, too.

Once you’ve bought your first home

Congratulations! You’re finally a homeowner and it feels good, we bet. But what now? Your savings journey needn’t come to an end here. If you didn’t save alongside your Help to Buy ISA, now would be a great time to start looking into ways to save for whatever your future has in store for you. Or, if you did, it could be a great idea to consider channelling more money into saving for tomorrow, if you can. We can also help you to save on the cost of furnishing your first home if you just follow our simple guide.

If you have little ones, don’t forget to put a little aside for them, too. Our Junior Stocks & Shares ISA allows you to save tax-free for your children and gift them with a lump sum on their 18th birthday. This could give them a helping hand with important life steps, such as going to university, buying their first car or perhaps travelling to new places around the world. Just remember that, like any other ISA, Junior ISAs have their own set of rules, too.