From the 1st December 2015, first-time buyers will be able to utilise the brand new Help-to-Buy ISA scheme. The aim is to give a financial lift to prospective buyers hoping to make it onto the housing ladder for the first time; turning “Generation Rent” into “Generation Buy”.
What exactly is the Help to Buy ISA?
First of all, the Help to Buy ISA can only be opened by a first-time buyer (FTB). Each FTB can deposit a maximum of £200 a month towards a new home and the government will boost your savings by 25%. Therefore, if you deposit £200 for example, the government will top it up by a further £50. The maximum additional amount the government will give you is £3,000 per person. To receive this you would have had to save a total of £12,000.
| You Save | 25% Government Top Up | Total Savings |
| £12,000 | £3,000 | £15,000 |
| £8,000 | £2,000 | £10,000 |
| £2,500 | £625 | £3,125 |
Also, important to note is that you can make an initial deposit of £1,000 when you first open the account, which is an addition to your normal monthly savings. There is also a minimum bonus size of £400 per person, meaning you have to save at least £1,600 to get an extra-governmental boost. The bonus will be applicable if you are purchasing a house worth up to £250,000 outside London and up to £450,000 in London.
As with any ISA, you will also be able to accumulate tax-free interest at rates set by each individual provider (see below for a list of providers).
Who can open a Help to Buy ISA?
Only first-time buyers. It is not possible to open a joint Help to Buy ISA but if you want to buy as a couple, you can each open separate ISAs and make double the savings – a potential extra of £6,000. Usually, you can only open one cash ISA a year, so if you have already opened an ISA this financial year you may have to wait till April 2016. However, it is always best to enquire with a potential provider to make sure as some will let you open a Help to Buy ISA if you already have another ISA with them, such as Newcastle Building Society and Nationwide (as long as you don’t exceed the tax-free saving limit of £15,240).
You have four years to open an account, which means after 30th November 2019 you will no longer be able to do so. Once your ISA has been opened you have until 2030 to claim your bonus.
Where can I open a Help to Buy ISA?
14 providers have so far signed up for the scheme, including NatWest, Nationwide, Barclays, HSBC, Halifax, Lloyds, Virgin Money, RBS, Santander and Aldermore.
As there is a fair amount of competition, some lenders are trying to entice FTBs by offering better rates. For example, Halifax is offering an interest rate as high as 4%. However, this is variable and could change. There are a couple of reasons why lenders are offering better rates than others: the main one is that providers hope FTBs will stick with them when their time comes to take out a mortgage, although there is no obligation whatsoever to stick with the same bank or building society who provided the ISA, for your mortgage. Second, there is a limit on the amount of money savers can put in the ISA (i.e. £200 a month).
When exactly will the bonus be paid?
The bonus will only be paid when you are in the position to buy a property, so you won’t see your account being boosted every month. When you believe you’re in the situation to put an offer in you will receive a letter from your ISA provider stating the amount you have saved and the bonus you’re entitled to, which will be based on your total savings including the interest.
This letter then needs to be given to your conveyancing solicitor who will apply for the bonus on your behalf. Note, a solicitor can charge up to £50 plus VAT at 20% to process this payment.
No Brainer?
Yes!
In comparison to any other standard savings account, the bonus structure of the Help to Buy ISA is much better. Although it is aimed at helping people get onto the property ladder, it can still be used as a general savings account for those not already on the property ladder.
The reason it is a no-brainer is because:
- If you decide to buy, you’ll get a nice 25% bonus on top of what you have saved
- If you decide not to buy, you can withdraw your savings plus any interest accumulated. Although you won’t get the government bonus, the interest rates are higher than a normal savings account
You can also use the scheme alongside other Help to Buy schemes.
How Gorvins Can Help
Once you are in the position to buy, you will need an expert conveyancing solicitors to claim your bonus and complete all the legal necessities on your purchase. Our team at Gorvins can do just that for you, helping you to take that first step into homeownership.
For a free quote, give us a call today at 0161 930 5151. You can also fill out our online contact form and we will get back to you as soon as we can.