Help To Buy ISAs: The 6 Need-to-Knows
As the government has sought for an answer on how it can enable more people to become first time buyers and get onto the property ladder, the first ISA of its kind was announced early this year and forecast for release this autumn.
The Help to Buy ISA aims to help increase the number of first time buyers entering the housing market by offering a cash incentive to their savings.
Here’s what you need to know when it comes to opening a Help to Buy ISA:
Any first time buyer over 16 years old can open one
The benefits received from opening a Help To Buy ISA are solely for first time buyers to support them getting on the housing ladder. Providing you are a first time buyer and are aged 16 years or over, you are eligible.
We all know the housing market is competitive and on a pedestal that most single first time buyers are unable to reach. Consequently, they opt to buy with a friend, family member or partner.
With a Help to Buy ISA, there is no restriction on one per household and so if both mortgage-seekers are first time buyers, they are both entitled to open an account and receive the government bonus. Even if your partner has owned a house before, you can still open an account and use the saved money and added bonus to go towards a property for both of you.
2. Save every month
In the first month of opening your Help to Buy account, you can save up to £1200. From the second month onwards, you can save up to £200 per month.
There is no requirement to pay the maximum amount of money into the account, in neither the first month or subsequent months. If you are unable to save the amount of £200 each month, the bonus will be calculated based on how much you put in.
If you miss a contribution one month, the ISA still exists, you just can’t make this up the following month, as £200 is the maximum allowed after month one.
You can open up an account anytime between 1st December 2015 and December 2019. Between this period, you’ll be eligible to receive the accumulated bonus on the money placed into the account as long as you use it for a house deposit between 2015 and 2030.
3. The government provides 25% tax-free savings to use on a deposit
So, after you’ve saved and have started to look at properties, at the time you wish to buy a house and make it your home, your solicitor will request a letter from your bank upon closing the Help to Buy ISA account and, at that point, the government will issue a 25% bonus onto the amount you have saved, along with any interest accrued.
In order for this to happen, you must have at least £1600 in the ISA, providing you with an extra £400. The largest amount of money that you’ll get a bonus on is £12,000, creating a £3,000 bonus. If you are lucky enough to generate more than that then you can still use the ISA to place savings in, but you will not receive any bonus on it, above the £3000 cap.
4. It can be used for any property under £250,000 or £450,000 in London
The Help to Buy ISA can be used for any property outside of the London area that is £250,000 or less, or that is £450,000 or less in the London area.
5. The ISA can be used to buy any type of property
Unlike other government schemes, the savings and bonus accrued in your Help to Buy ISA do not have to be used for a specific type of property such as a new build. You can use it for any mortgage - it does not have to be a specific Help to Buy one, but can be if preferred.
It also can be combined with other savings elsewhere to contribute towards the purchase price of the house and you can also go to a different bank than the one you setup your Help to Buy ISA with to purchase the house .
6. You can’t open another ISA in the same year (sort of)
Although the government states you can only contribute to one ISA per year, banks have now started rolling out split Help to Buy ISAs that effectively enable you to contribute to two. Therefore, in one year you can save up to £15,240, which is the maximum ISA allowance per tax year for combined savings.
Looking for a help to buy ISA? Guillaumes are local experts in property conveyancing, essential for when you need to purchase your new home.
Let us know how we can help by contacting us today.