Financial Planning: Help-to-Buy ISA

Help-to-Buy ISA

Help-to-Buy ISA’s launched on  1st December 2015, acting as a saving vehicle to help those wishing to purchase their first home.

In order to qualify as a First Time Buyer you must NEVER have purchased or held shares in a property within or outside the UK.

Although there are plenty of other Government incentives for First Time Buyers, such as Equity Home Loan, Mortgage Guarantees and the New Build scheme, the Help-to-Buy scheme should be one to take advantage of, with the Government adding 25% and interest able to grow free from tax.

It’s a great opportunity and it looks as though buyers agree. Money Supermarket research concluded 82% of prospective buyers think the scheme will get them onto the property ladder earlier than they anticipated.

Key facts to be aware of when opening your Help-to-Buy ISA are:

  • a maximum of £200 can be saved per month
  • 25% will be added by the government, so an extra £50 free money
  • The Government have allowed for an initial contribution of £1,000 plus the monthly £200, so within your first month you can contribute a total of £1,200. However you will only receive your 25% added when a total of £1,600 is saved, giving first time buyers a bonus of £400.
  • Ultimately over time you can save up to £12,000 with the government adding a maximum bonus of £3,000, topping your savings up to a whopping £15,000, for the purposes of property purchase.

This begs the question as to why you wouldn’t take up this opportunity?

For those who can’t afford the maximum £200 contribution per month, don’t worry.  You can contribute as little each month as you wish. The beauty of this ISA is that it can run until 2030, so you can save as quickly or slowly as you wish.

The Government expect up to 1,000,000 people to use the Help-to-Buy ISA, for reasons such as a couple can both have an individual Help-to-Buy ISA and use the total savings of the two to purchase a property together.

The limitations of the Help-to-Buy ISA are:

  • To start a Help-to-Buy ISA, you have to be aged 16 or over
  • the funds can only be put towards homes under £250,000 (or £400,000 in London)
  • the account must be opened between 1st December 2015 and 1st December 2019.

Help-to-Buy ISA’s are classed as cash ISA’s, so you will not be able to open another ISA within the same tax year; however, any pre-existing ISA’s can continue to exist.

Bearing that limitation in mind you need to ask yourself the question, when am I likely to need my funds for property purchase?

Some people get the impression Help-to-Buy ISA’s can be used for Buy-to-Let mortgages, they cannot!  However the Government does recognise that people’s circumstances do change over time and homes may need to be let out later down the line. But if it is seen as intentionally avoiding the rules, the Government can request repayment of bonuses.

Finally, the banks and building societies offering Help-to-Buy ISAs have a wide range of interest rates so it is advised you shop around before jumping in head first, in order to achieve the highest possible rate of return.

Keep an eye out for our next blog, exploring the implications of the NEW Lifetime ISA.