What is the new Help to Buy ISA and how will it benefit you

Posted 1 December 2015 by Keith Osborne

The WhatHouse? team takes you through all you need to know about the Help to Buy ISA, which is being launched today (1 December 2015)...

Announced in the 2015 Budget by George Osborne, the Help to Buy ISA has now (1 December 2015) officially been launched, providing assistance for people to get on the property ladder. But what is a Help to Buy ISA and in what way will it help you if you want to buy your first home?

Help to Buy requires buyers to have at least a 5% deposit saved up, with the option of an equity loan of up to 20% of the purchase price or a 95% mortgage. The Help to Buy ISA is a new savings account to assist buyers in raising that deposit and it is open only to UK residents who are buying their first ever home. If you’ve already opened a cash ISA this tax year, you’ll have to close it before opening your Help to Buy ISA.

It works like ordinary cash ISAs and is available to anyone who is over 16 and does not own any property and has not done so in the past. The government will provide a 25% bonus on whatever is in your account (as long as it is more than £1,600) when you withdraw it to pay the deposit on your new home, which can be any home priced at up to £250,000, unless you are looking to buy a home in London, in which case this figure is increased to £450,000.

The Help to Buy ISA scheme is for individuals only. This benefits couples looking to buy their first home together in two ways; if you are a first-time buyer but your partner is not, you are still eligible to set up a Help to Buy ISA as it is your own account and has nothing to do with your partner. On the other hand, if you are both first-time buyers, then you can both set up an ISA, giving you the potential to earn twice as much. 

You can save up to £200 per month into the Help to Buy ISA (though you may open it with as much as £1,200), and the maximum bonus you will receive upon withdrawal is £3,000. The bonus is only received when you are buying a home and the funds are handed to the mortgage lender through your solicitor. You can use any mortgage to buy the home – you are not confined to using a Help to Buy mortgage.

If you decide not to purchase a home, you can withdraw the cash from your Help to Buy ISA.

So, the key points about the Help to Buy ISA are:

  • Only available to UK resident first-time buyers of 16-years-old or over
  • Initial payment allowed is a maximum £1,200
  • Monthly maximum payment thereafter is £200
  • The minimum you can save over the lifetime of your Help to Buy ISA is £1,600, the maximum is £12,000
  • Bonus of 25% of your savings (including interest earned), up to a maximum of £3,000 per buyer, paid when you purchase a home
  • Couples or friends buying a property together can have separate Help to Buy ISAs
  • You can use any mortgage to buy your home
  • The home can be anywhere in the UK
  • You cannot use a Help to Buy ISA to purchase a buy-to-let property, or rent out your home after purchasing it
  • You cannot contribute to a Help to Buy ISA and another cash ISA in the same tax year

Already, a number of banks and building societies have announced that they will be launching Help to Buy ISAs. Most are offering 2% annual interest (eg NatWest, Lloyds, Bank of Scotland and Nationwide), but Halifax has launched its Help to Buy ISA with a rate of 4%.

You will be able to open a Help to Buy ISA up to 30 November 2019 and all bonuses must be claimed by December 2030.

Get the full up-to-date facts about the Lifetime ISA here.


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