Help to Buy ISAs Explained

Jason Bailey

Written by Jason Bailey on March 20, 2019

Updated March 20, 2019

Family buying a home for the first time using Help to buy ISA

Taking those first steps onto the property ladder is no easy task; it takes a lot of saving and can take years to have enough to be able to buy your first home. With houses getting increasingly expensive, it is becoming more and more challenging for young people to save enough to secure the deposit on a mortgage.

The government have introduced the Help To Buy ISA in a bid to help young people save enough to purchase their first property and earn some free cash towards their new home. The idea behind the Help To Buy ISA is to give young people a helping hand in saving enough for a house deposit, although the scheme is set to close this year, so there isn’t long left to get involved. This guide covers what a Help To Buy ISA is, how they work, and who can qualify for an account.

What is a Help to Buy ISA?

The government create Help To Buy ISAs in an effort to make it easier for young people to save for a mortgage deposit and buy their first home. The savings you deposit into a Help To Buy ISA will be topped up by the government when you buy your first home. This is as a way to accelerate your savings and help you reach your goal quicker.

Like with all other ISAs, the money you save will not be taxed, and all the interest earned will be tax-free. The government will give you 25% of your savings back as a bonus, so for every £200 saved, the government will provide you with £50. There is a cap of £12,000 on savings with a Help To Buy ISA, so the maximum bonus you can receive from the government is £3,000.

The Help To Buy ISA scheme is scheduled to close on 30th November 2019, which means no new Help To Buy ISA accounts can be opened after this date. However, if you already have a Help To Buy ISA, or open an account before this closing date, you can continue to pay into the account until 30th November 2029.

How does a Help To Buy ISA work?

When you save using a Help To Buy ISA, the government will contribute a bonus of 25% of your savings, up to the maximum limit of £12,000. This means the biggest government bonus you can get is £3,000. This bonus, as well as any interest earned on your savings, will be completely tax-free. To qualify for the government bonus, you must save at least £1,600, which will give you a £400 bonus.

To start off your ISA, you can make an initial deposit of up to £1,000 which will qualify for the 25% government bonus. The government’s contribution is not added to your savings until you are purchasing your home, and your solicitor or conveyancer will apply for it on your behalf once your offer on a home has been accepted.

Help To Buy ISAs are available to first-time buyers only, but they are available to each first-time buyer as opposed to each house. This means if you are buying a home with your partner, you can both open a Help To Buy ISA and could then get a £6,000 bonus from the government.

Who can open a Help To Buy ISA?

Anyone in the UK over the age of 16 can open a Help To Buy ISA and use it for their savings; however, not everyone is eligible for the government bonus. In order to be eligible for the 25% boost from the government, you must:

  • Be using the money to buy your first home
  • Buy a property costing a maximum of £250,000, or £450,000 in London.

You can use a Help To Buy ISA for any mortgage; you do not have to choose a Help To Buy mortgage as well. There are a few restrictions on Help To Buy ISAs and the government bonus:

  • You cannot use a Help To Buy ISA to buy a property that you are going to rent out. You must be buying a property to live in.
  • You cannot use a Help To Buy ISA to purchase a property outside of the UK.
  • You cannot open more than one Help To Buy ISA.
  • You cannot open a Help To Buy ISA and a normal cash ISA within the same financial year.

The interest on a Help To Buy ISA will vary depending on the provider, so shop around for the best rates. You will not earn any interest on the government’s 25% contribution as the money will not be added to your ISA until you are buying a property.

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