The UK government has announced a new ISA scheme which it homes will better enable first time buyers to make their first steps onto the property ladder. For those signing up to the help to buy ISA, he government will offer a tax-free payment of up to £6,000 when buying their first home, and interest rates up to 4% when looking to save for a deposit.
Like other ISA’s, this one is tax free and designed as an incentive for potential first time buyers as a place to save up for their initial deposits. The added bonus with this new ISA is that the government will offer 25% to the value of whatever is saved in the account. The worth of this added lump sum is £3,000 per person, therefore £6,000 for a couple.
The ISA came into action from the 1st of December and has so far been picked up by 14 organisations in the UK, so is widespread for plenty of first time buyers to inquire.
Here is the official scheme outline from the Treasury.
How do they work?
Similarly, to any regular ISA, the new help to buy ISA gives you an account to to put your hard earned money in to gain interest whilst being free of tax. When an individual or couple first open an ISA they will be able to initially deposit up to £1,000 in one go. Following this, monthly payments can be made into the ISA of no more than £200 a month, with a maximum capacity of £12,000 in the account.
When the owner of the ISA looks to buy a home, the government then offer their 25% bonus fee. This is a £50 bonus on every £200 you save, scaling to a maximum of £3,000 per person. The bonus is available for home purchases of up to £450,000 in London and £250,000 outside the capital.
The ISA is available to anyone over the age of 16 and following its opening date of 1st December, it will close on 30th November 2019. The time in which to receive the government bonus also have an expiry date, so if you haven’t bought or put a deposit down by the end of 2030, you will loose the opportunity for your free 25%.
The Minimum amount of money you can save in this ISA to get the government bonus is £1,600, which essentially could be as little as four months’ worth of payments (initial £1000 followed by three monthly payments of £200).
Taking the plunge
Once you save up the maximum the ISA allows and you feel its time to make the big move onto the property ladder the helpful thing means you aren’t tied to the same bank or lender that you took out the ISA, although they will almost certainly make you a deal before you get chance to shop around. No matter how good the deal is, you should always thoroughly check the market for the best possible, and our mortgage brokers can certainly help you do that.
If your deal for a new home falls through but you still want to clear the ISA, you are allowed to withdraw the money but you will not receive any of the government bonus because you have not committed it to a deal directly from the ISA.
This new ISA is another great help to first time buyers as renting climbs, making it trickier than ever to put cash aside. The mortgage market is wider and more confusing than ever, so as well as saving, take a step back and make the correct decision once you have done the hard bit of saving.