Help-to-Buy ISAs have been classed as 'no brainers' and are all the rage in the world of finance and saving for a deposit. But what exactly are they?
What is a Help-to-Buy ISA?
Not to be confused with the Help-to-Buy government shared equity scheme whereby the government will loan you an amount for a down payment (you save 5% and they loan you 20% for a fair deposit of 25%), a Help-to-Buy ISA is a savings account that you open in order to save a deposit for a house. The government will then top up your savings by an extra 25%.
How does Help-to-Buy ISA work exactly?
The government will give you £50 for every £200 you save for a deposit for your first house. You don’t have to pay this money back - it’s a bonus.
Here are the Help-to-Buy ISA hard and fast rules: -
You have to be a first-time buyer and not own property anywhere else in the world.
The deposit can only be used for property in the UK.
The minimum amount you can save is £1,600 (£400 will be added on top of that) and the maximum amount is £12,000, (you’ll get £3,000 from the government for that).
Once you find a house you like and apply for a mortgage, your solicitor will provide the necessary paperwork and the bonus will be added to your savings.
The Help-to-Buy ISA can only be used in relation to a deposit for a house which must be bought with a mortgage.
You can only open one Help-to-Buy ISA. Ever.
You can’t open an ordinary savings account and a Help-to-Buy ISA in the same tax year - but if you already have an ISA from a previous year, you can contribute to that as normal, keeping in mind that the total ISA allowance per tax year is £15,240.
You have to be over 16 to open a Help-to-Buy ISA.
You have to have a National Insurance number.
You have to be a UK resident and to get your bonus you must be in the UK.
You can’t open a Help-to-Buy ISA with someone else.
You can save up to £1,200 in the first month and up to £200 in the following months.
You don’t have to put money in the account every month but you can only put up to £200 in any given month. At this rate, it will take you 5 years to collect the maximum of £12,000 in the Help-to-Buy ISA and be eligible for the government bonus of £3,000
You can withdraw money from your Help-to-Buy ISA account at any time.
Any interest you make on your money is yours, does not affect the Help-to-Buy ISA scheme and will go towards the final deposit amount, which will be calculated in order for the government to provide you with your bonus.
If you withdraw all your money in order to pay a deposit and then the sale falls through, you are allowed to put all the money back into the ISA but this is the only exception to being able to do this. If you withdraw money at any other time, you can only deposit back the limit of up to £200 a month.
Your savings gain interest but there is no interest paid on your government bonus.
A Help-to-Buy ISA can’t be used on a buy-to-rent property and is to be used in a home that you will live in. You can’t rent out this home and this must be your first home.
Although your name doesn’t have to be on the mortgage of the property, your name will need to be on the deed of title of the property.
The property you’ll use your bonus on cannot exceed £250,000 if outside London, and £450,000 if in London.
If you and your partner want to buy a place together and are both first time buyers, you can both get separate Help-to-Buy ISA accounts, doubling your deposit. (The house price will still need to be up to £450,000 if in London and £250,000 if not.)
If you open an ISA and come across another bank who is offering a better interest rate, you are allowed to transfer your Help-to-Buy ISA to another bank.
The Help-to-Buy ISA scheme expires 30 November 2019 and you must use your bonus by 1 December 2030.
How to apply for your Help-to-Buy ISA bonus
You don't... your solicitor will do it for you. Once you have found a property and have sorted out your mortgage, you’ll have to apply to your bank to close your ISA account and withdraw the money (but don’t withdraw it yet). You take the document the bank will provide you with to your solicitor who will then apply for the bonus. Solicitors are only allowed to charge you up to £50 plus vat to process your bonus for you.
Which banks provide Help-to-Buy ISA?
The following 14 banks and building societies have Help-to-Buy ISAs and you can apply either online, by phone, or by visiting a branch: -
• Halifax (the leader at the moment with 4 per cent interest)
• Virgin Money (3 per cent)
• Barclays (2.25 per cent)
• Aldermore (2 per cent)
• Bank of Scotland (2 per cent)
• HSBC (2 per cent)
• Lloyds (2 per cent)
• Nationwide (2 per cent)
• NatWest (2 per cent AER variable)
• Santander (2 per cent to existing customers and 1.5 per cent to new customers)
• Yorkshire Bank (0.7 per cent)
• Clydesdale Bank (0.7 per cent)
• Newcastle Building Society (1.51 per cent AER variable)
• Ulster Bank (2 per cent AER variable).
Have a look at all your options and compare Help-to-Buy ISA accounts on MoneySupermarket.
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This article originally appeared on The Debrief.