Launched on 01 December 2015, the Help to Buy ISA scheme is designed to help prospective home buyers save money, and receive a financial bonus from the government relative to how much they have saved in their ISA.
What is the Help to Buy ISA?
An Individual Savings Account (ISA) is a form of savings account which is exempt from tax, as is the interest made on it.
You can usually only save a certain amount of cash in an ISA per year, but the limit can change. For 2016/17 it is £15,240, and it will increase to £20,000 in the 2017/18 tax year.
A Help to Buy ISA is slightly different, with a few extra rules, but also some helpful benefits.
How do I save into a Help to Buy ISA?
Every calendar month, savers can put a maximum of £200 into the ISA. For the first month however, a saver can put in an extra £1,000, meaning a total of £1,200 is saved in the first month. After this, the £200 limit will return.
When you use your savings to buy your first home, the government adds a 25 per cent, tax-free bonus, up to a maximum of £3,000. Put simply, you will receive £50 from the government for every £200 you save, as long as you use the money to purchase your first home.
The most that you can receive the bonus on is £12,000, but you can still use the ISA to save above this figure.
The government will only pay a bonus if you have at least £1,600 saved into the ISA (therefore receiving a bonus of £400).
Using the bonus from the Help to Buy ISA
The government bonus can only be used for the mortgage deposit, not the exchange deposit. This means you only receive the ISA bonus upon completion of the sale, to prevent people receiving it even if they pulled out of a sale.
Usually the seller of a property asks for a 10 per cent deposit, after the offer is accepted, and this is known as the exchange deposit. This ensures that no other buyers can intervene, and both parties are committed to the sale.
The final deposit is where you can use the government bonus. Known as the mortgage deposit, this is the stage at which you complete the purchase and become the legal property owner. You can use the bonus at this stage to help reduce the amount of money that you need to borrow, as well as reducing the cost of your mortgage rate.
Who is eligible?
The Help to Buy ISA is for prospective first-time buyers, who are at least 16 years old. The ISA can be opened at any point between December 2015 and December 2019, and to receive the bonus, you must use the money by 2030 in a house purchase.
You won’t be able to open the Help to Buy ISA until the next tax year if you have already opened a cash ISA in any given year, due to the limit on the number of ISAs that people can open.
There are no joint Help to Buy ISAs, but you and your partner can open your own individual one if you are both first-time buyers. If you both use your ISA to purchase a house together, then you can end up saving £400 a month and double the bonus.
Additionally, the bonus from the Help to Buy ISA can only be used on properties costing up to £250,000, outside of London. For properties in London, only those up to a value of £450,000 can be bought using the government bonus. It doesn’t need to be a new-build house, however, unlike some other home buying schemes.
Who offers Help to Buy ISAs?
A number of different banks and lenders offer the Help to Buy ISA. Just like with a normal ISA, applicants need to go through a bank, rather than the government.
At the time of writing, Halifax, Lloyds, Santander, Barclays, HSBC and Nationwide offer the Help to Buy ISA.
You do not need to get a mortgage from the same bank you open your Help to Buy ISA with, either.
Lloyds, Barclays, Santander and Nationwide all announced that they would offer a Help to Buy ISA but check with all banks and shop around for the best offers and the deal which is right for you.
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How Help to Buy Equity Loans Work
- First time buyers and those already on the property ladder can apply.
- To qualify a 5% deposit is required.
- A 75% mortgage must be secured from your bank or building society.
- The remaining 20% of the property’s value is funded by an equity loan provided by the Government.
- House prices can’t be more than £600,000 in England and £300,000 in Wales.