The Help to Buy ISA explained
There’s a strong chance you will have heard of an ISA before.
Essentially a savings account, an ISA provides tax-free interest benefits to savers.
However, there is a limit on the amount of money you can save.
The Help to Buy ISA is the same. Except in this case, you need to be a first-time buyer to have one and the government will make contributions on top of your tax-free savings.
Help to Buy ISA rules
There are qualification criteria for those wishing to open a Help to Buy ISA.
You must:
Be a first-time buyer
Be aged 16 or over
Be buying a home worth up to £250,000 (or £450,000 in London)
You can’t:
Use a Help to Buy ISA if you plan to rent out your property
Use a Help to Buy ISA to purchase a property overseas
Have more than one Help to Buy ISA
Open a Cash ISA and Help to Buy ISA in the same year (but you can transfer up to £1,200 from your Cash ISA if it was already open)
How the government contributions work
Any contributions made by you into your Help to Buy ISA will be topped up by 25% through a government contribution.
You need to make an initial deposit of up to £1,200 to open a Help to Buy ISA and the government will boost this by 25%.
After that, you can save up to a maximum of £200 per month up to a maximum total saving of £12,000 which qualifies for the government bonus.
So, the government will contribute £50 on top of each £200 saving you make, meaning your £12,000 saving becomes £15,000 (plus any interest you have earned tax free).
Buying with another first-time buyer?
If you are buying your first property jointly, perhaps with a partner, and they are also a first-time buyer, they can open a Help to Buy ISA on top of yours.
If they make the same £200 per month contribution on top of a £1,200 deposit you’ll have £6,000 in government contributions towards your property rather than £3,000.
Receiving the government bonus
Once you have reached the minimum saving amount of £1,600 to qualify for the government bonus, you can claim it at any time.
If you are aiming to save the maximum £12,000 per person at £200 per month, it will take you four-and-a-half years to save that amount.
That qualifies you for £3,000 in government bonuses.
To claim the money, you must instruct your solicitor or conveyancer to do so once your property purchase is under way.
The government will only release their contribution to your solicitor at the completion stage of the purchase, so you’ll need to make sure your deposit at the exchange of contracts stage is enough to proceed (usually 10% of the purchase price).
Deadline for opening Help to Buy ISAs
The government has confirmed no more Help to Buy ISAs will be available after November 30 2019.
So, if you want to open one, you’ll need to do it before that date.
Once opened, you’ll have until November 30 2029 to claim your government bonus (as long as you have reached the minimum saving amount of £1,600).
After that date, all Help to Buy ISAs will close to additional contributions.
Pros of the Help to Buy ISA
 * All interest on your savings is tax free
 * The government will top up your savings by 25%
 * You can save £200 per month up to November 2029 (government bonus is only paid on a maximum of £12,000)
 * You can access your saved money plus the interest at any time (doing so forfeits the government bonus)
 * Each first-time buyer can have their own Help to Buy ISA
 * Most high street banks provide Help to Buy ISAs
 * You can switch your account at any time for free
Cons of the Help to Buy ISA
 * Saving is slow – Maximum contributions are £200 per month so it would take four-and-half years to save enough to claim the maximum £3,000 government bonus
 * You need to save at least £1,600 to claim the government bonus (in that case, £400)
 * There is no interest payable on the government bonus
 * You can only buy a home costing up to £250,000 (£450,000 in London)
 * You can only use the government bonus on completion of your purchase
 * You may have to pay your solicitor an administration fee for collecting the government bonus
 * There is a time limit on opening an account. Help to Buy ISAs will no longer be available after November 30 2019.
