Are You A First Time Buyer? Help to Buy ISA explained

Buying a home is an extremely complicated process, especially when you’re a first time buyer. From mortgages, to stamp duty, there are so many aspects that go into purchasing a house, that it’s more than understandable that many people end up confused.  As a new buyer, it’s likely that the phrase you’ve heard thrown around the most is ‘help to buy’, and in particular, Help to Buy ISA.

Are You A First Time Buyer? Help to Buy ISA explained

Help to Buy ISAs are now closed to new applicants, however if you were lucky enough to open one in time you can continue to save with it until 2029. To help you avoid any further confusion, here is everything you need to know about Help to Buy ISAs.  

If you’re too late for a Help to Buy ISA, look into opening a lifetime ISA instead.

What is a Help to Buy Isa?

Although they can vary from bank to bank, essentially Help to Buy ISAs are savings accounts specifically to help first time buyers save up for a mortgage deposit. As with other ISA accounts, they aren’t taxed. Plus, they also come with the added bonus of additional funds from the government when the money is used to purchase a new home.

The rule is, for every £200 saved the government will pay £50 to go towards the purchase of a property. On savings of up to £12,000 this words out to be an additional 25%, and a minimum tax-free bonus of £3,000.

With getting on to the property ladder proving more and more difficult, it’s no wonder that these ISAs proved to be so popular.

Who can use a Help to Buy Isa?

Help to Buy ISAs are available to any UK resident over the age of 16, however there are a few boxes you need to tick in order to qualify for the bonus;

The money saved must be used (in full) to purchase a first home - the bonus will only be paid after you have purchased the property.

The property purchased can cost a maximum of £250,000 (or £45,000 in London).

The property purchased must be mortgaged - although you do not have to get your mortgage with the same back you held your ISA with.

A common misunderstanding is that the home must be a new build property. This isn’t the case for the ISA, but is true for Help to Buy Equity loans.

It is also worth noting that if you are saving with another person, you can open separate ISA accounts and use them to purchase the same property. Meaning, as long as you are both first time buyers, you could potentially get a combined £6,000 government bonus. If the other person is not a second time buyer, you can still purchase the property with them and qualify for the bonus on your part of the deposit.

How much can you pay into a Help to Buy Isa?

There is a limit on how much you can pay into a Help to Buy ISA. Your savings are capped at a maximum of £200 a month. However, when you first open the account you can add an additional £1,000, making it possible to save £1,200 in your first month.

The account will also earn interest from the bank, just like any other savings account. This will count towards the balance that the government bonus is based on.

With a Help to Buy ISA, it is worth keeping in mind that the maximum you can save is £2,400 a year. This means, assuming you also paid in the additional £1,000 when you opened the account, it will take more than 4 and a half years of saving to benefit from the maximum government bonus of £3,000.

You can withdraw money from the account if you need to, although this is not advised. No matter what your withdrawal amount, your deposit amount will not change. So if you pay in £200 and take it out within the same month, you will not be able to pay anything else in until the next calendar month.

Where can I access an ISA Calculator?

If you’re looking to accurately calculate your government bonus, the best place to go is to your bank. They will be able to assess the savings in your account, and tell you the exact bonus amount you have earned.

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