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Help to buy ISA – All you need to know

Are you looking to save towards your first home? Well, you’re in the right place. Whilst currently your best option would probably be to go for a lifetime ISA, in the past help to buy ISAs were put in place by the government to help first time home buyers by adding a government bonus onto any money you save.

We’re going to go more in-depth on how the help to buy ISA worked, the government bonus money and how you qualified to get this special ISA. We’ll also give you some alternatives to help you!

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What is a Help To Buy ISA?

Whilst the Help to Buy ISAs officially closed to any new applicants in November 2019, If you already have an account you can continue to save into it until 2029.

A help to buy ISA was a special type of ISA account that was started by the government at the end of 2015. This special ISA was aimed specifically at people who were looking to buy their first-ever home and aid in the property purchase.

The big draw for Help to Buy ISA was the fact you got a hefty government bonus on the money you saved. This ISA bonus was a huge 25% if you managed to hit a certain target with your savings.

How Do Help to Buy ISAs work?

If you met the criteria we mention below and got into the scheme before the deadline of 30th November 2019, then you would have access to the tax-free help to buy ISA savings account.  This ISA will have the benefit of the government supplementing your savings with an extra 25% of whatever you put in.

the biggest government bonus you can get for your help to buy ISA is £3,000. To get this bonus for your help to buy ISA, you need to have paid £12,000 into your Help to Buy ISA savings account.

To reach this amount, you can pay regular amounts into your help to buy ISA. The first month you deposit into your account, you can make a lump sum deposit of up to £1,200. For the months following this, the maximum monthly contribution you can make is £200.

As an example, if you made the maximum opening contribution amount of £1,200 and then followed it up with the maximum monthly contribution of £200, then it would only take four years and seven months to hit the maximum bonus of £12,000 of your own money saved and £3,000 government bonus.

Government Bonus Payouts

One thing to know about the government bonus is the fact that you won’t actually get your hands on your bonus or withdraw money until you’ve fully completed the purchase of your first home. This also means that the government bonus portion of the money can’t actually be used as a deposit against the property you’re looking at.

If you’re ready to get a mortgage on a property, you get the choice of mortgages and can choose any sort of provider as long as the mortgage is a residential one and not a buy to let class of mortgage.

Once you’ve completed your purchase, the money from your help to buy ISA will be transferred directly to whoever is lending you the mortgage. This is done via the solicitor or conveyancer who is handling the purchase of your property.

If you have worries about not having enough money to pay the initial deposit on a property without this government bonus, it may be worth asking the seller’s solicitor if there’s an option to pay a smaller deposit at this point in the process and paying off the remainder when the sale completes.

If for some reason the seller of the property that you’re after won’t do this, then it may be the case that you fund the discrepancy you have for the deposit yourself and use the government bonus money towards the mortgage payments.

Getting the government bonus will be possible when you’ve provided a closing letter to your solicitor or conveyancer from your Help to Buy ISA provider. Your solicitor is the only one who can apply for this government bonus, and they usually charge for this service. The charge is usually around the £50 mark but varies depending on the solicitor and their location.

If you change your mind and decide that you don’t want to buy a property, you’re fully entitled to any savings you’ve amassed and any interest you’ve earned on those savings. You just won’t get any bonus money from the government that you may have accrued, since it’s for property purchases only.

How can I use this money?

The money you put into any Help to Buy ISA is for use by a first-time buyer in helping to buy a property. This property cannot cost more than £250,000. This amount is £450,000 if the property is situated in London).

Whilst new savers may be starting from zero, If you had a cash ISA that has £1,200 or less in you could move this amount directly into your help to buy ISA. If you did this, you would have had to move the full amount into the new ISA – you couldn’t transfer part of the balance.

There was an option that some ISA providers called a ‘split ISA’. This allowed savers to effectively have both a cash ISA and Help to Buy ISA balance in the same ‘wrapper’, claiming great tax-free interest. The combined value of these ISA’s couldn’t exceed the annual allowance of £20,000 though, and interest rates of these split ISA savings accounts were often a bit lower than just a plain cash ISA.

In regards to taking out a mortgage, you don’t have to use the same provider that you use for any ISA you may hold.

Help to Buy ISA Qualifications

There were quite a few different requirements that needed to be met to get a Help to Buy ISA. These included:

  • You had to be a first-time buyer. If you had previously bought any other property then you were not eligible.
  • You had to live in the United Kingdom unless you worked for the Crown Service overseas.
  • You had to be 16 years of age or older.
  • The property that you were using the Help to Buy ISA for had to be your only property and purchased with a mortgage.
  • The home you use the ISA for must be worth up to £250,000 or £450,000 if the property is in London.
  • You could use your Help to Buy ISA with any type of mortgage – it didn’t just have to be the help to buy a variety.
  • You weren’t eligible for help to buy ISAs if you were going to rent out the property you use the money to purchase. The property you purchased had to be the only home you wanted to live in.
  • You also couldn’t use the funds to purchase any property overseas.
  • You could combine a Help to Buy ISA and a standard ISA in the same wrapper but allowance limits are still applied.

How soon do you get your money?

Once you have the minimum amount – £1,600 – in your account, you have the option to use that money and the bonus amount for a property purchase. If you want to get a bigger bonus of £3,000 bonus money, you need to hit the maximum amount saved – £12,000. This will take almost 5 years if you make the largest initial deposit of £1,200 and deposit £2000 per month.

Remember that if you want to use your savings funds you’ll have to go through a solicitor and contact them before the sale of the property completes.

Other Government Schemes and ISA Accounts

Whilst new applicants for help to buy ISAs may be dismayed to hear that the scheme has stopped, there is an alternative type of ISA scheme from the government that can help you to purchase your first home.

Lifetime ISA

Lifetime ISAs are still open for applications and are seen as a kind of replacement for help to buy ISAs, You again receive a 25% bonus on your money from the government, which nicely substitutes the old Help to buy version.

There are a few changes with this lifetime version though – the bonus is applied monthly and the money can also be used for your retirement. Something else worth noting is that you can’t have both of these types of ISA – you can only have a lifetime Isa or a Help to buy at any one time.

Help to Buy ISA FAQs

How much bonus money can I get from the government?

The government will add 25% of the amount saved in your ISA as a bonus, up to a maximum of £3,000. This money can only be claimed when buying a property with a mortgage and not for a mortgage deposit or any other reason.

Are the Help to Buy ISAs still open for application?

Applications for this government scheme shut on November 30th 2019, and so they aren’t opening any new accounts.

Can I switch my ISA provider?

You can! The process is the same as it is with the standard cash ISA and will require a form to be completed by the provider.
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