Help to Buy ISAs, How does it Work?

A Help to Buy: ISA is a government scheme for those saving to buy their first home in the UK. The government offer a bonus of 25% of total savings, with a maximum bonus of £3000.

There are several guidelines that must be met such as being a UK resident; being unable to rent the property out once it has been purchased and being over the age of 16.

It is possible to deposit up to £200 per month into the ISA (up to £1200 in the first month) which can be done in multiple deposits. There is also no requirement for a deposit to be made each month. Once the purchase of a new home has been organised with the solicitor, the solicitor will apply for the bonus and the bonus will go immediately to the seller.

The ISA can be opened any time up until 30th November 2019, and the bonus must be claimed by 1 December 2030. To be eligible for the bonus, the property must be paid for with a mortgage.

Advantages include the fact that the ISA is available from numerous banks and building societies across the UK:

• Two people can combine their ISAs for a total bonus of £6000 from the government for the same house.
• As with all ISAs, the interest is tax-free which means that it is higher than other savings accounts.
• If necessary, the ISA can be transferred between banks and the money can be withdrawn at any time.
• The ISA can also be used in conjunction with other government schemes such as Help to Buy: Mortgage Guarantee and Equity Loan schemes.

Alternatives to the Help to Buy ISA :

ISA include the normal cash ISA, which don’t include a government bonus, but which allow the individual to save more than £200 per month and still retain a competitive tax-free interest rate (thus speeding up the rate of saving).

There are some potential drawbacks to opening a Help to Buy: ISA, as ISA interest rates are variable, and while they are currently very competitive, this could change. It is possible that the ISA could slow down the process of buying a house, as it would take over four years to earn the full government bonus (with the £200 monthly cap). Additionally, the solicitor or conveyancer must be registered with the Help to Buy scheme before they (First-time buyers) can apply for the bonus, and they could charge up to £50+VAT for the application itself.