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Help to Buy ISA – could it help you afford a home?
The Government’s Help to Buy ISA is a scheme aimed at getting first-time buyers on the property ladder. It was introduced on the 1st of December 2015 and offers 25% on top of your monthly savings.
In just the two months it has been available, the Help to Buy scheme has seen a huge take up, with 250,000 first-time buyers opening an account to take advantage of the generous savings bonuses. That works out as one ISA opened every 30 seconds!
How does it work?
The Help to Buy ISA effectively tops up your savings by offering 25% on a maximum of £200 each month – which works out at £50 extra each month. You can deposit up to £12,000 in total, which means the uttermost you can earn from the Government on top of your savings in this scheme is £3,000.
But, as this £3,000 limit applies per person, if you’re saving up for your first home with your partner, then you both have access to a £3,000 bonus from the Government – meaning that together you can earn £6,000.
You won’t have to pay tax on the savings you set aside here either, as ISA accounts are tax-free.
In the first month of opening your account, you’re allowed to deposit a lump sum of up to £1,200, afterwards you’ll be restricted to £200 each month.
When it comes to claiming your cash, you must have at least £1,600 saved before you can claim the bonus from the Government. This means the minimum you can claim is £400. At the point where you’re in the process of buying your first home, your solicitor or conveyancer can apply for your Government bonus and it will be put towards your home purchase*.
How do I know if I qualify?
In order to qualify for a Help to Buy ISA, the main thing is you must be a first-time buyer that has never before owned any property anywhere in the world. Alongside this, you have to be over 16, you must have a valid National Insurance Number and you must be a UK resident.
If you have opened a separate cash ISA in the same tax year, you won’t be eligible for a Help to Buy ISA. However, if you do have money in a cash ISA from the same tax year, you should be able to transfer up to £1,200 of the funds into your Help to Buy ISA. You’ll have to move the rest either into a standard savings account or a stocks and shares ISA.
If you opened your cash ISA in a different tax year, however, you’ll be able to retain both. Remember, a tax year begins on April 5th and finishes on the same date the following year.
In addition to this, there are restrictions on the property you’re hoping to buy with the savings, too. For starters, it has to be in the UK, it cannot be rented out once you’ve bought it, it must be your first home and it must not be used for buy-to-let purposes. Plus, it can cost no more than £450,000 if it’s in London, and no more than £250,000 for the rest of the UK.
You’ll have to take out a mortgage to qualify for the Help to Buy ISA, too, so you can’t buy a property outright and benefit from the Government bonus at the same time.
How do I apply?
Many of the main UK banks and building societies offer Help to Buy ISAs, and you should be able to apply for one either by visiting a branch, phoning in or visiting their website – depending on the firm you choose.
A complete list of the banks and building societies offering Help to Buy ISAs is below:
- Aldermore - Bank of Scotland - Barclays
- Clydesdale Bank - Halifax - HSBC
- Lloyds - Nationwide - NatWest
- Newcastle Building Society - Santander - Ulster Bank
- Virgin Money - Yorkshire Bank
*It was reported in August 2016 that the government bonus on Help to Buy ISAs cannot be included in the initial deposit on a home, but is paid once the sale has completed. Find out more here.