The Help to Buy ISA could net new homeowners up to £3,000 in free cash from the government towards their first property, but you’ve got to be quick to get one.
The government savings scheme to help first-time buyers get on the housing ladder is due to close to new applicants on 30th November 2019.
There’s very little risk opening one up if you never use it, which means anyone who’s never owned a property should think about getting one this month. That includes young people over 16 who might not even have home-owning on their radar.
Here’s what you need to know about the savings account, and alternatives.
What is a Help to Buy ISA?
The Help to Buy ISA is a tax-free savings account which also gives a 25% bonus when buying a home for the first time. All the money saved can also earn interest, though the bonus is only paid when you buy your house and your solicitor claims it for you.
You can open most accounts with just £1, going up to a maximum deposit of up to £1,000. You can then pay in up to £200 a month, including the first month.
The minimum you can save to claim the bonus is £1,600, meaning the fastest you can use it is after three months and you’d get a free £400.
The most you can get as a bonus is £3,000 on savings of £12,000, which if you contribute the full amount every month would take 55 months, so four and a half years.
The last date you can claim the bonus is 1st December 2030.
Who is eligible for a Help to Buy ISA?
You must be over 16. There’s no upper age limit. Obviously you also need to have never owned a home.
You can use it towards homes valued up to £250,000 (or £450,000 in London). The property must be the one you live in – you can’t buy it to rent it out.
You can’t have a Cash ISA open at the same time and pay into it separately unless your bank lets you do this with what’s know as a split ISA. However, with savings rates so low in ISAs and the personal savings allowance set at £1,000 for most people, you probably don’t need to bother with a Cash ISA right now.
Who should open a Help to Buy ISA?
It’s good for any first-time buyers who are looking to buy in the next 12 months on properties that cost less that the max values. If you’re buying with another first-time buyer you can both use one, doubling how much free money you’ll get.
But there’s also no harm for anyone who is eligible from opening one up with just £1 before the 30th November deadline, even if you don’t think you will – or can – buy anytime soon.
You don’t have to save any more money into it until you feel you’re likely to buy a home. And if you decide not to then you can just withdraw any cash in there penalty-free.
This means its well worth over 16s opening up one just in case their circumstances allow them to save enough cash to buy a home before the end of 2030 deadline.
Best Help to Buy ISAs
I’d go for a Cash Help to Buy ISA. Check local building societies as some offer decent rates to people living nearby.
Otherwise, Natwest, Nationwide and Barclays all offer more than 2.5% interest.
What about Lifetime ISAs?
The Lifetime ISA also offers a 25% bonus to first-time buyers, and this isn’t closing for new applicants. In some ways it’s better than the Help to Buy ISA.
You can save up to £4,000 a year and potentially could get as much as £32,000 of free cash from the government (though you’d have to save the full annual amount from age 18 to 49). You also get the bonus monthly and can earn interest on the bonus. The maximum property price is £450,000 everywhere, not just in London.
However, the main downside is that if you don’t buy a house with the money, you can’t withdraw it penalty-free. Instead you can only access it at 60 years old. There’s also an age cap of 39 years old and you can’t use it towards a home until it’s been open for a year.
So I think it’s only one to open once you know you are going to buy a home, or if you’re about to turn 40 (again you can do this with just £1).
There’s no reason you can’t have both a Help to Buy ISA and Lifetime ISA – you just can’t claim the home bonus from both.