How to get a help to buy ISA

Mar 05, 2018
How to get a help to buy ISA

It is a first-time buyer’s dream come true. The government will give you a lump sum when you buy your first home. It’s called the Help to Buy ISA and it’s designed to boost your savings pot. But there’s a few things you need to know first.

Who qualifies for a Help to Buy ISA?

Anyone over the age of 16 who does not own and has never owned a home anywhere in the UK or the world. If you have already been left a property or a share of a property in a will, you are not classed as a first-time buyer and you won’t qualify for a Help to Buy ISA.

Saving as a couple

If you’re not a first-time buyer, but your partner is, they can open a Help to Buy ISA to save for your first home. If you’re both official first-time buyers, you can open one each and double the government bonus you will receive. If you each pay in maximum contributions of £200 a month, you could benefit from £6,000 of government top-up in total.

What type of home can you buy?

Any house or apartment in the UK. In London it’s up to the value of £450,000. Elsewhere, the price cap is £250,000. It must be the only home you own and be bought with a mortgage. You must intend to live in the home and not use it as a second home or rent it out to anyone else.

How much will it cost me?

You can usually open a Help to Buy ISA with a minimum deposit of £1, but check with your bank, building society or credit union.

How it works:

  • Your own savings, up to a maximum of £12,000, will be topped up by a government contribution of 25%.
  • So, for example, if you save up the maximum of £200 a month, it means an extra £50 will be added to your pot each month. Save £100 and it’s £25. But remember, you’ll only receive this bonus amount when you buy a property.
  • When you open your Help to Buy ISA you can save £1,000 as a lump sum plus a further £200 in the first month to start you off. You don’t have to open the account with £1,000, but it’s a good way to use a cash gift or money from other savings.
  • If you miss a contribution one month, it’s not a problem. But you won’t benefit from the government contribution that month. And you won’t be able to double up the following month. The idea is to support regular saving.
  • To qualify for any Help to Buy ISA bonus, you must save at least £1,600, when a bonus of £400 will kick in.
  • In total, the government will contribute a maximum of £3,000 to your Help to Buy ISA. You will need to save that full £12,000 yourself to qualify for this full amount.
  • You will be earning interest on your savings. All the 28 banks, building societies and credit unions currently in the scheme offer varying interest rates. So you may reach your target sooner or later than you expect. This will depend on your contributions and the interest rate of your chosen Help to Buy ISA. But remember - interest is paid only on your savings, not on the government’s contribution.

Help to Buy ISA myths busted

It’s helped thousands of first-time buyers maximise their savings, but there are still a lot of myths and misunderstandings about the Help to Buy ISA. So here are some facts to clear up a few.
  • You can only hold one Help to Buy ISA in your name. Unlike other forms of ISA, you can’t open a new one every year.
  • You don’t need to keep your Help to Buy ISA with the same provider if you’re not happy. If the interest rate drops, for example, it’s yours to move to another bank, building society or credit union.
  • You can’t open a new cash ISA in the same year as you open a Help to Buy ISA. There are ways to combine various ISAs in a ‘wrapper’, but you should seek independent financial advice.
  • You can transfer cash from existing ISAs into your Help to Buy ISAs, subject to terms and conditions.
  • You can hold more than £12,000 in a Help to Buy ISA, but any savings above this threshold won’t qualify for the government bonus.
  • You can withdraw cash from your Help to Buy ISA to spend as you like, but you won’t get any government bonus for these withdrawals.
  • You don’t have to take out your mortgage with the same provider as your Help to Buy ISA. It’s a stand-alone product.
  • You can apply for a Help to Buy ISA until November 2019.
  • And you can save into your Help to Buy ISA and claim the government bonus until December 2030, when the scheme will close.

How a Help to Buy ISA helps you by a home

You are probably wondering exactly how the savings in a Help to Buy ISA end up helping you to buy your first home. Here’s how it works.
  • When you apply for a mortgage all your savings are taken into account by the lender. This includes what you have put into your Help to Buy ISA. The government bonus is factored in too. It contributes to the mortgage deposit you have available to work with. It’s the money you have ‘up front’ if you like.
  • The size of this mortgage deposit, plus your income and other factors including outgoings and creditworthiness all contribute to the lender’s decision.
  • Don’t get a mortgage deposit confused with the exchange deposit. Remember that an exchange deposit is the money your solicitor pays to secure your new home when you exchange contracts and are ready to complete.
This guide to Help to Buy ISAs was produced in collaboration with L&C Mortgages, the UK’s largest fee free mortgage broker and adviser.