The Help to Buy ISA Guide
With the gap between property prices and the aspiring buyer’s ability to save continuing to stretch, first-time buyers are on the look-out for tax-free savings’ boosters and one tactic that’s proving to be a rewarding springboard is the Help to Buy ISA.
The Help to Buy ISA closed to new accounts on the 30th November 2019 and is no longer available to open, but if you already have an existing account that you opened before this date, you can still continue to deposit money into it until November 2029.
Between April 2015 and April 2016, the average cost of renting rose 5.1% outside of London - equating to £764 a month - and 7.7% in London, or £1,543 a month. With the average UK salary now sitting at around £26,000, financial planners estimate that if you save 20% of that each year you would have £3,840 after tax; meaning that a first-time buyer would take 5.2 years to save for a 10% mortgage deposit on a property worth £200,000 if they had no help.
With a Help to Buy ISA, you can earn 2.5% interest tax-free and the government will then add 25% of what you save onto the grand total. According to Martin Lewis, the founder and chair of the financial advice website moneysavingexpert.com, Help to Buy ISAs are a ‘no-brainer if you’re a first-time buyer saving for a mortgage deposit’ - since you’ll be saving with or without the help, why say no to free money?
What is the Help to Buy ISA?
Launched in December 2015, the Help to Buy ISA is a government initiative designed to help newbie homeowners save for a mortgage deposit on a property by topping up their funds by 25% - giving them £50 for every £200 they save.
In the first month of opening your ISA you can tuck away £1,200 and up to £200 each following month. In order to claim the 25% bonus you need to have at least £1,600, which is feasible within just three months of saving (£1,200 + £200 + £200) and you would then receive £400 to make a lump sum of £2,000.
And If You Carry On Saving…
You’ll be able to continue saving a maximum of £200 a month until you hit the £12,000 mark, at which point you’ll be eligible for the highest bonus on offer from the government - £3,000, creating a grand total of £15,000. Of course you can still continue to save but you won’t be able to receive a higher bonus than £3,000 at present.
How Long is it Available for?
First-time buyers are able to open a Help to Buy ISA until 30th November 2019 and a 25% bonus will be added as long as it is used for a mortgage deposit by 1st December 2030.
What are the Catches?
This is a fantastic opportunity for prospective homeowners to save and receive a ‘no-questions-asked’ booster from the government, and since first-time buyers are a crucial facet of the property market, this scheme is designed to aid what is becoming an increasingly-hard process in today’s economy.
There are no catches involved, you won’t have to pay anything back and you won’t get penalised if you don’t save the maximum amount. However, there are a few things to bear in mind when setting up your Help to Buy ISA:
- It’s purely residential, so it does not apply to those looking to Buy-to-Let.
- The property you are intending to buy must be valued up to £250,000 (£450,000 if it’s in London).
- You cannot have an active cash ISA within the same tax year. Plus unlike a normal cash ISA where you can open a new one every year, you’re only allowed just the one Help to Buy ISA.
- The 25% bonus will only go towards the deposit of the mortgage of a property, and cannot be used for other expenses. Therefore if you’re a cash buyer, the Help to Buy ISA will not be applicable.
But as long as you’re 16 or over, a UK resident and a first-time buyer then you’re eligible!
Flexible and Rewarding
Property experts say that anyone wanting to own their own property in the future should definitely consider opening a Help to Buy ISA. It encourages you to save and rewards you for doing so; plus it’s flexible, allowing you to claim for the bonus at any point after reaching the minimum £1,600, and you can have additional savings alongside your ISA (providing it’s not in a cash ISA for the current tax year).
You won’t be restricted to buying a new-build property or setting up a Help to Buy mortgage. Also, if you’re keeping an eye on the interest rates and find that the bank you’re with isn’t offering the best deal on the market, you can transfer your ISA to another bank.
Double Your Savings as a Couple
The scheme applies to individuals only, so if you’re in a couple and intend on buying together you can both benefit by opening two separate Help to Buy ISAs, helping you save a combined £400 a month.
How to Claim Your Bonus
When you’re ready to buy - which would take four and a half years if you saved £200 each month (plus the initial £1,200) without any additional savings - in order to receive your bonus you would need to close the Help to Buy ISA account and notify your solicitor or conveyancer who will then apply for it on your behalf.
Find out more about Help to Buy and all that’s available under the government scheme here. You can also take a look at the Galliard developments now available with Help to Buy, or call 020 7620 1500 for a chat with one of our sales advisors to discuss the opportunities further.