If you think back to the big points from this year’s Budget, chances are you would immediately think of the pension reforms that were announced. But, as we approach 1 December 2015, another Budget announcement will start to make a little more noise than it did all of those months ago. Step forward, the Help to Buy ISA.
What is a Help to Buy ISA?
This is an ISA specifically designed for first-time buyers who are looking to build up a deposit for their first house. As with all other ISAs, it’s a tax-free savings account where the Government adds 25% to what you’ve saved in an attempt to help you get you on the first rung of the housing ladder.
Interestingly, you’ll be able to kick-start your Help To Buy savings, as you’re allowed to put £1,200 into the account in the first month. From then on, you’re able to put up to £200 a month into the account.
But, before we get talking about money, an important thing to factor in is that you might not even be able to open a Help To Buy ISA if you’ve already opened a regular cash ISA in 2015. However, if you’re desperate to take advantage of the generous Government top up that wouldn’t be available with a regular ISA, there are a few options.
The first would be withdrawing any money you’ve dropped into a cash ISA this year and opening up a new Help To Buy ISA, and you could also transfer from one to the other, provided you were transferring a lower amount than the £1,200 you’re allowed to open the account with.
Is every bank offering it?
Not quite every bank, but Barclays, Lloyds, NatWest, Santander, Nationwide and Virgin Money will all be offering it on 1 December, which is a great take up. It’s no surprise that the big mortgage lenders make up the majority of this list (all bar Halifax) as it provides them with a great opportunity to make it easier for you to get a mortgage with them when the time comes to cash in your ISA and buy your home.
How does the interest work?
The interest that you earn on the money in your account will count towards the government bonus. So, even though you may end up with more than £12,000 (assuming you open the account with the maximum £1,200 then continue to put in £200 a month) when interest is factored in, the bonus is capped at £3,000.
How does the money get put towards your house?
When you find your home, you’ll appoint a solicitor or conveyancer to take care of the legal side of the process. When you’re almost ready to complete the purchase of your home, you’ll close your Help To Buy ISA which will trigger a closing letter from them. The letter will allow your solicitor to apply for the bonus on your behalf (because the bonus never actually appears in your account) and it will be transferred to them on a specified date.
Anything else to consider?
For something apparently quite simple, there’s actually a lot of things to factor in. For example, the ISA can only be used for a property costing under £250,000 (£450,000 in London). Also, if you’re a couple, you’re treated separately, meaning that if your partner isn’t a first time buyer, you can still have one. Likewise, if you’re both first time buyers, you could both open a Help To Buy ISA.
Overall, this will be a great product for some people to consider. If you’re planning to buy a house in the next few years, it’s definitely something that should be on your radar.
This article is for general use only and is not intended to address your particular requirements. It should not be relied upon in its entirety and shall not be deemed to be or constitute advice.
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