The Help to Buy ISA could provide the helping hand you need to get on the property ladder, with an added boost of a 25% government bonus on top of your savings for a deposit on your first home.
What is a Help to Buy ISA?
This is a government backed scheme, established in 2015. The purpose of this product is to help you to save for a mortgage deposit. Just like with any ISA product, savings are tax-efficient.
However, this type of ISA has the added benefit of government contributions.
For every £200 you save, the government will contribute an additional £50. The bonus that you receive (up to a maximum of £3,000) will help you to increase the size of your deposit and reduce the size of your mortgage.
Be aware, you can only use your Help to Buy ISA to purchase a home worth a maximum of £250,000, or £450,000 in London.
How does the Help to Buy ISA work?
• You can open your Help to Buy ISA with an optional initial lump sum deposit of up to £1,000 – then save up to £200 per month.
• In order to receive a bonus, you will need to have saved at least £1,600.
• Qualifying for the maximum bonus of £3,000 will take at least four and a half years, based on the maximum saving of £200 per month.
• You can withdraw money from your ISA at any time. However, as the minimum government bonus is £400, you will need to save at least £1,600 before you are eligible to receive a bonus.
• If you are buying your first house with your partner, you can both have a Help to Buy ISA providing you both meet the criteria. Together, you could earn a bonus of £6,000 towards your first mortgage deposit.
• When the time comes to purchase your first home, your solicitor or conveyancer will apply for the bonus, which will then be added to the money you’re putting towards your first home.
• A closing statement from your Help2Buy ISA provider is required to obtain your bonus.
• Your mortgage lender will ask for evidence of the funds that you have available, including the amount you have saved in your Help to Buy ISA.
• Your lender will then include the amount of your government bonus when working out your mortgage loan amount.
Important information: You can put your help to buy ISA towards your mortgage deposit, not your exchange deposit (also known as a contract or holding deposit). The government will only pay out the bonus once the sale of the property is complete and contracts have exchanged.
Am I eligible for a Help to buy ISA?
To understand if you are eligible for a Help to Buy ISA, consider the following:
- First -time buyer
- Age 16+
- National Insurance number
- UK Resident
- Buying a home worth under £250,000
- Buying a home worth under £450,000 in London
- You will be the account holder
- Buying overseas
- Opening cash ISA in same year*
- Already have a Help to Buy ISA
*If you already have a cash ISA, you can still open a Help to Buy ISA, but you may need to take additional steps.
Help to buy ISA – Key Facts
1. To qualify, you cannot own a property anywhere else in the world.
2. The minimum amount you need to save to qualify for a government bonus is £1,600.
3. The government will give you a bonus worth 25% of what you pay in, up to a maximum of £3,000.
4. Created for first time buyers over 16
5. Available until 30th November 2019
Another option for those who want to save up to buy their first home is a Lifetime ISA, this is a newer product that was released has an alternative to the Help to Buy ISA in April 2017. There are differences between the two, such as a Lifetime ISA can be used to build a retirement savings pot.