What is a Help to Buy ISA?
In this article, Sue Roberts looks at the detail behind the Government’s Help to Buy ISA scheme.
If you are saving to buy your first home, the government will help you by boosting your savings by 25% if you save in to a Help to Buy ISA account. Put simply, for every £200.00 you save the government will give you an additional £50.00 bonus.
The maximum bonus the government will pay is £3,000 and the minimum is £400.00.
The purpose of the bonus is to contribute towards the deposit required when you buy your first home. Help to Buy ISA’s are available if you meet certain criteria:
- You must be over the age of 16 with a National Insurance number
- You must be a UK resident.
- You should not have another cash ISA in the same tax year.
- You must also be a first time buyer which means you must not own any property either in the UK or in any other part of the world. If you have an ongoing beneficial interest in a residential property through a trust, including one created by a will or divorce, then you are not regarded as a first time buyer.
You can set your Help to Buy ISA up with any number of building societies or banks and its worth checking out the different rates on offer before deciding which bank or building society to choose. You’re not tied into getting a mortgage from the same bank you open your Help to Buy ISA with.
As a Help to Buy ISA is available to ‘every’ first time buyer this means that if you are planning to buy with your partner who is also a first time buyer, you can receive a government bonus of 2 x £3,000, i.e. £6,000. You cannot open an account jointly with someone else as each person must have their own individual account. If you are buying a house jointly and one of you isn’t a first time buyer then you can open an account but they can’t.
When you open your account you are committing to saving up to £200 per month in to your ISA. However, the government will allow you to kick start the account by putting a lump sum of up to £1,200 in to the account when you open it. As the minimum bonus paid by the government is £400, you will need to have saved £1,600 before any bonus can be claimed. If you want to claim the maximum bonus allowed of £3,000, you will need to have saved £12,000.
If you miss paying a contribution in to your ISA one month that is not a problem although you cannot make it up the following month, i.e., you can still only pay in up to £200 in the next month.
If you have a Help to Buy ISA you need to tell your Solicitor or Conveyancer about it because it will be up to them to apply for the bonus when you are nearing formal completion of your purchase. You cannot use the bonus for the deposit payable on exchange of contracts as it must specifically be used as part of the money required to complete the transaction. Your conveyancer will be claiming the bonus once the transaction is certain, so they will apply for it between exchange of contracts and completion.
There are rules about the property you are buying and claiming the Help to Buy bonus. These are:
- The property must be in the UK
- have a purchase price of up to £250,000 (or up to £450,000 in London (that includes inner and outer boroughs)
- be the only home you will own
- be where you intend on living
- be purchased with a mortgage
When you use a Help to Buy ISA to buy a home, you sign a declaration saying that you won’t rent the property out – the Government’s idea is to encourage homeownership. This means that you will not be allowed to buy the property with the intention of renting it out. If someone is caught doing this the government say they would seek to reclaim any bonus paid! However, you will be allowed to rent it out further down the line if your family or employment circumstances change and this results in you having to make rental arrangements for your property.
The government say that the help to buy ISA will be available to anyone who qualifies, until 30 November 2019. After this time you won’t be able to open a new account. If you open one before this date you can continue saving in to it until 30 November 2029. All bonus’s must be claimed by 1 December 2030.