What Is the Help To Buy ISA and why should I care?
The government has launched a new initiative to help first-time buyers scrape together the money needed to put down a deposit on a home of their own.
The Help to Buy ISA, which was launched as the majority of the country was gearing up for Christmas, rewards first-time buyers who are saving up for their deposit to receive a tax-free bonus.
East London estate agent Peach Properties says take-up of the offer has been encouraging, with products currently available paying up to 4% interest tax free on any savings made. And that’s before the state adds another 25% of the value, tax free again, when the property purchase is eventually made.
A total of 14 banks and building societies are signed up to the initiative, offering a variety of deals on Help to Buy ISAs.
And the catch?
As with any other ISA, there are conditions attached. The amount you can save has limits with a maximum start-up investment of £1,200 in the first month, and then a maximum monthly contribution of £200 thereafter. Obviously if you have less to save, you’re free to contribute less.
When you finally come to buy your first home, the state will then add 25% to whatever is in your ISA so long as you have a minimum sum of £1,600 and a maximum of £12,000 saved.
London property specialist Plaza Estates says that translates as the government giving first-time buyers £50 for every £200 they save.
Hammersmith estate agent Lawsons & Daughters comments: “While £3000 is less than 1% of the cost of the majority of London properties, any help offered to first-time buyers should be welcomed.
“If the property is being bought by a couple, it should be remembered that a total of £6000 can be received from the government towards its purchase cost.”
Account holders must save for a minimum of three calendar months to reach the threshold amount.
The scheme is open to anyone over the age of 16 who’s a UK resident and is planning to buy their first property. However, if you’re planning to buy a property with a partner it’s worth noting that as the scheme is open to individuals only, it’s possible to get a double bonus.
A couple looking to buy a house can both have a Help to Buy ISA so long as neither has owned a property before, which means two bonus sums to add into their calculations.
Even if one partner already owns the one that does not can still open a Help to Buy ISA and benefit from the 25% bonus on offer.
What type of properties can it be used to buy?
The scheme is only available to be used on properties in the UK that are worth up to £250,000 (or £450,000 in London). However, it need not be new-build home.
In order to get your hands on the extra money the government has promised, account holders will need to close the Help to Buy ISA and transfer the funds to a different account. You’ll receive a closing letter from the ISA provider, which must then be handed to your conveyancer or solicitor who will apply for the bonus online.
What if things change?
Buying any property can be a long, drawn-out process, and many first-time buyers’ plans change. If a Help To Buy ISA account holder decides not to use the savings to purchase a property they can withdraw the money at any time, but will not receive the bonus on offer.
It should also be borne in mind that although the scheme is due to run until 2030, a future government may decide to change the rules – so stay informed. For those seeking to get on the property ladder in the next five years at least, the Help to Buy ISA is an excellent initiative that certainly shouldn’t be sniffed at.