If you’re a first-time buyer struggling to save enough deposit to get on the first rung of the property ladder, you could get a helping hand from the government if you take out a Help to Buy Isa. As long as you regularly top up your Isa, you could earn yourself a healthy bonus of up to £3,000 towards the cost of a new home.
What is a Help to Buy Isa?
Help to Buy Isas were introduced by the government in 2015 with the aim of encouraging and helping first-time buyers to save for a mortgage. Not only does the Help to Buy Isa offer tax-free interest (which is usually higher than that of a cash Isa), there is also an added incentive - if you manage to save a minimum of £1,600 you’ll be entitled to an additional 25% bonus from the government.
This can range from £400 up to £3,000 in free cash towards the cost of buying your first home.
The bonus payment is only available to those first-time buyers purchasing a property in the UK, and for homes up to the value of £450,000 in London and £250,00 outside of London and it cannot be used to purchase a second home or a buy-to-let property. If you don’t fit this criteria, you’re better off finding somewhere else, like a high-interest account or cash Isa where you can squirrel your money away into.
Who can open a Help to Buy Isa?
Help to buy Isas are available to any first-time buyer over the age of 16 years and can be opened anytime from now until December 2019. An added benefit is that the bonus scheme doesn’t end in 2019, it’s set to run and pay out on help to buy Isa savings until December 2030.
So, if you think you might be in the market to buy a house between now and 2030, and fancy some free cash as an incentive to save, then it’s worth considering opening a help to buy Isa.
Although it’s highly unlikely that a 16-year-old will be looking to get their foot on the property ladder just yet, a help to buy Isa is the perfect way to invest for the future. While parents can give children money to put into the Isa, the account has to be opened by the child and not the parent.
You can only open one help to buy Isa, but you can pay into it until you reach the maximum investment limit.
How much can you invest?
After an initial deposit of up to £1,200, there is no minimum monthly deposit, but you can save up to £200 a month up to a maximum of £12,000. If you miss a monthly payment you cannot make up for it the following month. The maximum monthly savings allowance remains at £200.
In order to qualify for the 25% bonus payment, savers need to have £1,600 invested in their Isa. For this, they’ll receive a bonus of £400.
The maximum amount you can invest in a help-to-buy Isa is £12,000, on which you’ll receive a £3,000 bonus when you buy a house – making a total pot of £15,000 for your deposit, plus any interest accrued which will be paid tax-free.
It’s worth noting that rather than having one help to buy Isa per home, it’s one per person. That means if you are planning on buying with someone else, as long as you are both first-buyers, you can both take advantage of the perks of a help to buy Isa including the bonus.
This means that if you both invest the maximum amount into the scheme you’d receive a joint bonus of £6,000.
How do you receive the bonus?
To ‘receive’ the bonus you’ll need a solicitor to process the paperwork, which will set you back up to £60. The bonus doesn’t get paid into your account; instead, when you’re ready to buy a property you close your Help to Buy Isa, transfer the funds to another account and get a closing letter from your provider.
Your solicitor then uses the letter to apply for the government bonus, which is paid out as part of your mortgage deposit.
If for any reason the property purchase doesn’t go through your bonus is returned to the government and you’ll be issued with a purchase failure notification. This will allow you to re-open your Help to Buy Isa and re-deposit your savings as a lump sum until needed.