Help to Buy ISA
In the 2015 Budget Chancellor George Osborne unveiled plans to launch a Help to Buy ISA in order to help first-time buyers get onto the property ladder and it subsequently launched on 1st December 2015.
A Help to Buy ISA is a type of Cash ISA that allows first-time buyers to save up to £200 a month which the government then tops up by 25%.
An initial deposit of up to £1,000 can be made and if subscribing the maximum allowance, the government will top the account up by the equivalent of an additional £50 per month.
‘save up to £200 a month which the government then tops up by 25%’
The government bonus is capped at £3,000 so the maximum amount you can save into a Help to Buy ISA is £12,000, but accounts are limited to one per person rather than one per home so people buying together can each receive the government bonus.
A Help to Buy ISA is a variant of a Cash ISA and because current rules dictate that it is only possible to open one cash and one stocks and shares ISA per tax year it is not possible to open a Help to Buy ISA with one provider and a Cash ISA with another.
However, it is possible for the prospective home owner to open a Cash ISA within the same ‘wrapper’ with the provider of their Help to Buy ISA and fully subscribe up to the £20,000 allowance – this is called a ‘split ISA’ although rates may be slightly lower.
Unlike a Cash ISA where it is possible to open an account with a different provider each tax year, it is only possible to hold one Help to Buy ISA although this can be transferred from one provider to another in search of a better rate.
A Help to Buy ISA is a savings product so there is no investment risk; the accounts pay a set amount of interest, but it is wise to check the small print as some are described as ‘variable’ – i.e. that headline rate could change in the future.
‘Help to Buy ISA is a savings product so there is no investment risk’
Halifax is leading the charge at present offering 4% interest, Virgin Money is at 3%, Nat West, Nationwide and Aldemore are at 2%.
The government top up does not appear on the account, rather it is paid directly to a mortgage lender or conveyancer at the point of property purchase; a first time buyer is defined as someone that has never owned or had an interest in the ownership of a property in the UK.
Accounts can be opened until December 2019 and bonus payments are to be paid through to 2030 subject to the policies of any future administration.
Anyone over the age of sixteen can open a Help to Buy ISA and it could be a useful vehicle for parents to contribute towards; accounts can be opened for a period of four years from the start date of the scheme.
The Help to Buy ISA can be used for a mortgage on a UK residential property up to £250,000 (£450,000 in London) and the mortgage does not have to be taken out with the provider of the ISA.
A bonus is only applied if the account reaches £1,600 (£400 bonus) when the account holder seeks to purchase a property; up until that point funds can be withdrawn as required.
There is little downside in opening a Help to Buy ISA – if you decide that you are not ready to buy a property or the property you plan to purchase is beyond the price threshold, you are able to withdraw funds at any time with tax free interest payments, just without the government bonus although it is this 25% addition that makes the proposition so attractive.