Whilst the announcement was made back in March in the budget, there’s been a wealth of talk surrounding Help To Buy ISAs over the past few days; largely to do with the fact that, with the Conservatives winning the general election, it’s something which first time buyers can start to get excited about. The question which many have, however, is what exactly is a ‘Help To Buy ISA’ and how can they help those saving up to buy their first time as opposed to using a traditional ISA?
We’ve put together our own quick guide to Help To Buy ISAs below which will answer hopefully any of the questions which you may have:
1. What Is A Help To Buy ISA?
Set to launch this Autumn (2015), the Help To Buy ISA scheme will allow those saving up for a deposit to put down on their first home to save up to £200 per month and receive a 25% top up (£50 on £200) from the government. It will also be possible to add an extra £1,000 when the ISA is first opened, enabling £1,200 to be saved in the first month and be topped up to £1,500. Essentially, a Help To Buy ISA will make it that little bit easier for first time buyers to save up a sufficient deposit, essentially allowing them to save from pre-tax income.
In order to receive the bonus, a minimum of £1,600 will need to be saved (which equates to a £400 bonus) and the maximum which the government will add will be £3,000 (which would be from you having saved £12,000).
In short, the Help To Buy ISA scheme is a fantastic way for first time buyers to top their deposit fund up by up to £3,000 by simply saving, as they would be any way. It’s part of the governments dedication to helping people to become homeowners and to get themselves onto the property ladder.
2. Where Will Help To Buy ISAs Be Available?
As with all ISAs, Help To Buy ISAs will be available through both banks and building societies, with interest rates being set by them just as with any other ISA. Interest will be paid on savings in addition to the government bonus being given so it pays to shop around and find the best rates once the scheme launches in the autumn.
3. Can You Contribute To A Help To Buy ISA & A Cash ISA In The Same Year?
Unfortunately not. If you’ve already contributed to an ISA in the past month (since 6th April 2015), you’ll have to wait until next tex year before you can open a Help To Buy ISA. If you haven’t already contributed to an ISA this year it may well pay to consider waiting until Help To Buy ISAs launch in the autumn if you’re saving up for your first home.
4. Who Can Open A Help To Buy ISA?
Anyone who is a first time buyer(meaning they’ve never owned a home before) and over the age of 16 will be able to open a Help To Buy ISA this autumn. If you’re buying joint with someone who has previously owned a home you’ll still be able to open one, however it just means they won’t be able to. Those on any income will be eligible to open one so long as they’re buying for the first time.
5. When Does The Help To Buy ISA Scheme Launch?
The Help To Buy ISA scheme is set to launch this autumn and following this, you’ll be able to open one for four year until autumn 2019. Once open, you’ll be able to pay into the ISA for as long as you need to in order to save up for the deposit for your first home.
6. Can You Have More Than One Help To Buy ISA?
No. An individual is only able to open one Help To Buy ISA unlike is the case with a Cash ISA. If you’re buying as a couple, however, you would both be eligible to open one.
7. How & When Will The 25% Bonus Be Paid?
The 25% bonus which is added by the government will be paid when you buy your first home and will be supplied in the form of a voucher which will go straight to your mortgage lender. As such, you won’t actually see the money in your account to ensure it is used to purchase a home. If you did not end up buying a home, you would not see the bonus but would, of course, still have your savings. You will, however, see the benefit when you purchase as you’ll have up to an extra £3,000 for your deposit.
8. Can Any Home Be Bought Using The Bonus?
The bonus under the Help To Buy ISA scheme can be used to buy any house up to the value of £250,000 (£450,000 in London) however this is the only restriction. You can purchase either a new build or an existing home.
9. Can You Take The Bonus At Any Time?
It will take approximately four years to save up £12,000 which is what is needed to get the full £3,000 bonus, however you are able to claim this once it is at least £400. As such, once you’ve saved £1,600 you could, if you wanted to buy sooner rather than later, claim the voucher for an additional 25%. This would take three months if you added the extra £1,000 in the first month or eight months at £200 a month.
10. Is A Help To Buy ISA Better Than A Cash ISA?
Whilst you can only put £2,400 into a Help To Buy ISA each year, compared to £15,240 in a Cash ISA, it’s important that you consider the bonus. If you’re saving for your first home, that £2,400 each year would turn into £3000 – a bonus of £600. Even if you were to save the full £15,240 each year in a Cash ISA, you would need to be getting an interest rate of around 4% to receive the same. At this moment in time, however, even the best ISA rates are no more than 2% in most instances when fixed in for five years or around 1.5% for easy access. As such, for first time buyers, this will be a far preferential scheme and any tax payable on interest on additional savings will be far outweighed by the bonus.
Whilst many of the finer details are still to be confirmed surrounding Help To Buy ISAs, on the outset they look to be a fantastic way for first time buyers to top up their deposits and encourage regular savings towards this goal whilst receiving a sizeable bonus of up to £3,000 upon the purchase of a property.
Of course, when the time comes to buy your first home, you’ll still need to arrange a mortgage as normal and, as such, it’s strongly recommended you take the time to speak with a professional mortgage broker to ensure you’re getting the very best deal as well as invaluable advice and support.