For many, buying your first house is a significant milestone – up there with having your first child and getting married. However, recent property prices have prevented many young first time buyers achieving their dream until their 30s. The Help to Buy ISA is the government’s latest initiative to help first times buyers – but what’s it all about?
Launching on 1st December, the Help to Buy ISA is a scheme aimed at helping young people save for their first deposit. The ISA is a tax free savings account, to which the government will add 25% when the savings are used to buy a property.
Key Facts
- The ISA must be opened between 1st December 2015 and December 2019.
- You must be aged 16 or over.
- Must not own, or have previously owned, any residential property inside or outside the UK, whether bought or inherited.
- Available from Barclays, Lloyds Banking Group, Nationwide, NatWest, Santander, and Virgin Money.
The ISA is individual – That means a couple can open an ISA each and save independently. When they come to purchase a property, they will EACH receive the Help to Buy benefit towards their deposit.
Property restrictions
- The ISA can be used towards a mortgage for ANY property, except buy-to-let.
- Is not restricted to new build properties.
- Maximum property value of £250,000, or £450,000 in London.
How the money works
- Save up to £1200 in the first month, then up to £200 per month after that.
- When the ISA is used towards a deposit, the government adds 25%.
- The maximum savings eligible are £12,000. With the government contribution this becomes £15,000.
- Maximum government contribution is £3,000 (providing £12,000 saved)
- Minimum savings to receive contribution is £1,600.
- You can save as much as you like in the ISA, but you’ll only receive 25% deposit contribution on savings up to £12,000.
- The money is paid via your solicitor when you buy a house.
Other points of interest
- Only one Help to Buy ISA is allowed per person. Unlike cash ISAs, you are unable to open a new one each tax year.
- You can move the Help to Buy ISA between different providers to chase the best interest rate.
- You can’t contribute into a cash ISA and Help to Buy ISA in the same year. If you’ve already contributed to a cash ISA in the 2015-16 tax year, you’ll have to wait until April 2016 to open the Help to Buy ISA. However, there are other options available, such as transferring the cash ISA into a stocks & shares ISA. For help on ISA reclassification, and the options available to you, please contact your bank.
A complete no-brainer
If you don’t own a property, this savings scheme is a complete no-brainer. Save just £200 a month and after 5 years you’ll have saved £12,000 – the full eligible amount.
If you then choose to not buy a property – no problem. You can withdraw all the savings you’ve accumulated over 5 years of tax-free saving.
But if you do want to buy a property, you’ve just got yourself £3,000 off the deposit, or £6,000 if you and your partner have both saved.
That’s a good deal!
