Help to Buy ISAs explained

A Help to Buy ISA is a savings account that you cannot be taxed on. These special savings accounts pay out a 25% bonus when you withdraw the money as long as it is being used to help pay for your first home.

The Help to Buy ISA scheme ended in November 2019. Anyone who already opened a Help to Buy ISA before this date is free to pay money into it, and will still receive the 25% bonus. However, if you missed the date, you won’t be able to open a new Help to Buy ISA.

How much can you pay into a Help to Buy ISA?

There are strict limitations on the amount of money you can pay into a Help to Buy ISA. In the first month of opening the account, you were able to deposit up to £1,200, but then for every following month you can only deposit a maximum of £200 each month. If you are able to deposit these top-level amounts, it means you’ll save £3,400 in your first year and then £2,400 every year that follows.

What’s the biggest bonus you can get?

When you decide to cash in your Help to Buy ISA, if you’re using it to pay for your first property then you’ll get a 25% bonus on top of the money you’ve saved. There is a cap on this – the most that one person can receive is £3,000 as a bonus payment, which you’d have needed to save £12,000 to qualify for. There’s also a lower limit of a £400 bonus, which you need to save £1,600 to earn.

However, two people can have a Help to Buy ISA if you’re both eligible. This means that any couples looking to buy their first property together could take advantage of a combined £6,000 bonus when they first buy a property.

What can you use the bonus for?

The bonus can only be used to pay part of your mortgage off once you’ve completed the purchase of a property. It has to be within the UK and it can be on a property worth up to £250,000 outside of London, or up to £450,000 within the capital.

The bonus is only paid on completion which means you can’t put it towards the deposit you’re saving to get your mortgage. And it’ll all be handled by your solicitor, with the bonus paid directly into the mortgage, so that you’ve no chance of accidentally using it for other means.

You must claim your bonus before the 1st December 2030. If you don’t, you’ll still have your savings but you won’t be eligible for the extra cash.

Interest and ISA rules

A Help to Buy ISA is just the same as any other ISA and so you will earn interest on the amount of money you save during the duration of the account. Different providers offer different rates so you should make sure to do your research before you commit.

They also fall under the same governance as other ISAs. You’re only able to open one ISA per year, and while you can have multiple ISAs and pay into them all, the most you can pay in across all of your ISAs is £20,000 per year. Anything more will have to go into another form of investment.

Be aware that not every provider will allow you to save money in multiple ISAs, including high street names such as Natwest and Nationwide, so again do your research before making your final decision.

What happens if the property purchase falls through?

If, after saving up all that money and making the leap to buy your first property, your purchase falls through, you don’t need to worry. You can re-open your Help to Buy ISA and you’ll still be eligible for the bonus against the money you’ve paid. You’d just need to get a letter from your solicitor which explained to your provider that the purchase had failed. The ISA will be re-opened and you can then continue to add to it to potentially grow your bonus further.

Alternatives to a Help to Buy ISA

Now that the Help to Buy ISA scheme has stopped accepting new applicants, many people are opting for a Lifetime ISA (referred to commonly as a LISA). These offer a similar 25% tax-free bonus but instead to be used either towards a deposit on your first home or at retirement.

They aren’t as popular, as they have high exit fees if you decide to end the ISA for any reason other than a deposit on your first home or retirement, and you could actually lose some of the money you put into the savings pot. Speak to a financial advisor if you’re not sure on the best alternative to a Help to Buy ISA.

Martin Hannett

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