What is a Help to Buy ISA?
A Help to Buy ISA is a government scheme designed to help you save for a mortgage deposit to buy a home. To qualify you must be classified as a first-time buyer and not own a property anywhere in the world.
Savings are tax free just like with any ISA product, however, a Help to Buy ISA gives you the added bonus of getting government contributions.
How do Help to Buy ISAs work?
The government will top up any contributions you make by 25%, up to the contribution limit of £12,000. So, for every £200 you save, the government will contribute £50. This means you can earn a maximum of £3,000 from the government.
The minimum amount you need to save to qualify for a government bonus is £1,600 (which gives you a £400 bonus).
You can start off your ISA with an initial deposit of up to £1,000 which also qualifies for the 25% boost from the government.
Help to Buy ISAs are available to each first-time buyer, not each home. So, if you’re buying a property with your partner, for example, you’ll be able to get up to £6,000 towards your deposit.
When your solicitor or conveyancer should apply
Instruct your solicitor or conveyancer to apply for your government bonus once your offer has been accepted. Don’t wait until completion as this will be too late.
Once they receive the government bonus, it will be added to the money you’re putting towards your first home.
Will my bonus contribute towards the deposit to buy my home?
Yes, the government bonus will be added towards your overall deposit.
When calculating your mortgage, your lender will want evidence of the funds you have available. This will include the amount saved into your Help to Buy ISA. Your lender will then include the amount of your government bonus when working out your mortgage loan amount.
You need to be a first-time buyer.
You must be aged 16 or over.
You can use it to buy any home worth under £250,000 (or under £450,000 in London).
You can use a Help to Buy ISA with any mortgage; you’re not restricted to a Help to Buy mortgage.
You can’t use a Help to Buy ISA if you’re going to rent out the property.
You can’t use a Help to Buy ISA on an overseas property.
You can’t have more than one Help to Buy ISA.
You can’t open a Help to Buy ISA and a normal Cash ISA in the same tax year*.
*Some providers will let you save into a cash ISA and a Help to Buy ISA within the same ISA wrapper. However, the standard cash ISA and Help to Buy ISA allowance limits will still apply.
How soon can you get the money?
Once your savings have reached the minimum amount (£1,600) you can claim your government bonus at any time.
If you want to qualify for the maximum bonus of £3,000 it will take just over four and a half years.
It’s worth noting you need to claim your bonus through your solicitor or conveyancer before completion, but after exchange of contracts, which might be subject to a maximum fee of £50 plus VAT.