FIRST-TIME buyers can get up to £3,000 free cash with a Help to Buy Isa when it comes to purchasing a home.
The government scheme rewards savers with a 25 per cent bonus to help them get on the property ladder.
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But plans to scrap the scheme come into effect on November 30 meaning that if you haven’t already opened an account you could miss out on thousands of pounds.
Here is what you need to know about Help to Buy Isa scheme:
What is a Help to Buy Isa?
An Isa is a tax-free savings account meaning that you can keep more of what you earn in interest on your cash.
A Help to Buy Isa is one that’s backed by the government that will top up your savings to help you buy your first home.
The government will boost your savings by 25 per cent up to £3,000.
So for example, for every £200 you save the government will top it up by £50.
You can also earn interest on top of whatever you save. The rates are set by the bank who you’ve taken an account with and vary depending on the lender.
Are there any downsides to a Help to Buy Isa?
You can open an account with a maximum of £1,200 but after that then you’re limited to saving £200 a month into it.
Top Help to Buy Isas
HERE’S how the top Help to Buy Isas compare, according to Moneyfacts:
These are the best Help to Buy Isas open to everyone but you may find some building socieites pay higher rates to locals.
- Tipton and Coseley Building Society – 2.6 per cent (no transfers, interest paid annually, variable rate)
- Barclays Bank – 2.58 per cent (transfers allowed, interest paid monthly, variable rate)
- Buckinghamshire Building Society – 2.5 per cent (transfers allowed, interest paid annually, variable rate)
- Nationwide – 2.5 per cent (transfers allowed, interest paid on account anniversary, variable rate)
- NatWest – 2.5 per cent (transfers allowed, variable rate)
- Virgin Money – 2.5 per cent (transfers allowed, interest paid annually, variable rate)
- Ulster Bank – 2.5 per cent (transfers allowed, interest paid monthly, variable rate)
If you want to save more than that in one month then you’ll need to consider opening another account to maximise your saving.
But you’re only allowed to save into one Isa account in a year so you’ll be taxed on the interest you earn in another type of account.
The minimum bonus is £400 meaning that you’ll need to save at least £1,600 in your Help to Buy Isa before claiming the top up.
Another downside is that you’ll only qualify for the top up on property with a purchase price of up to £250,000, or £450,000 in London.
Many first-time buyers get confused about when they will actually receive the government top up.
The money comes through when you complete on the purchase of the property.
It never actually reaches your account but instead goes straight to your solicitors and is tied up in the purchase transaction.
It must be used towards your deposit or to cover the legal fees, such as solicitor’s charges or stamp duty.
But it means that the top up can’t be used for the exchange deposit – this is when everyone in the chain puts down the same proportionate down payment when they exchange contracts.
This isn’t the same as the mortgage deposit. One young couple from Leicestershire were left with over £5,000 worth of debts after falling foul of the loophole.
Why are they being scrapped?
From December 1 this year, the Help to Buy Isas will disappear from the market for good meaning you won’t be able to open one.
If you open an account before the November 30 deadline then you will still be able to claim the bonus until 2029.
Ministers have decided to pull the scheme in favour of the Lifetime Isa, which also gives buyers free government cash on savings worth up to 25 per cent.
What help is out there for first-time buyers?
GETTING on the property ladder can feel like a daunting task but there are schemes out there to help first-time buyers have their own home.
Help to Buy Isa – It’s a tax-free savings account where for every £200 you save, the Government will add an extra £50. But there’s a maximum limit of £3,000 which is paid to your solicitor when you move.
Help to Buy equity loan – The Government will lend you up to 20 per cent of the home’s value – or 40 per cent in London – after you’ve put down a five per cent deposit. The loan is on top of a normal mortgage but it can only be used to buy a new build property.
Lifetime Isa – This is another Government scheme that gives anyone aged 18 to 39 the chance to save tax-free and get a bonus of up to £32,000 towards their first home. You can save up to £4,000 a year and the Government will add 25 per cent on top.
Shared ownership – Co-owning with a housing association means you can buy a part of the property and pay rent on the remaining amount. You can buy anything from 25 to 75 per cent of the property but you’re restricted to specific ones.
“First dibs” in London – London Mayor Sadiq Khan is working on a scheme that will restrict sales of all new-build homes in the capital up to £350,000 to UK buyers for three months before any overseas marketing can take place.
Starter Home Initiative – A Government scheme that will see 200,000 new-build homes in England sold to first-time buyers with a 20 per cent discount by 2020. To receive updates on the progress of these homes you can register your interest on the Starter Homes website.
The maximum free cash you can get over a lifetime is £32,000 but you can only use the money to buy your first home or to top up your pension when you’re 60.
There are also fears that the Help to Buy scheme drove up house prices and only benefited the rich – official figures showed that the average earnings of someone who claimed the bonus earned £55,000 a year.
Should I open one even if I’m not buying a home?
MoneySavingExpert Martin Lewis reckons it’s worth opening an account before the deadline even if you have no intentions of buying a home.
The accounts can be opened with just £1 and you won’t face a penalty for withdrawing cash early if you don’t want to use it for the top up.
In his newsletter in June, Martin wrote: “If you think you’ll need these [the government top up] but aren’t sure, just open them.
“They’re a great way to save for older children. If your kids are 16+ for a Help to Buy Isa or 18+ for a LISA, the bonus means these are a great place to give them money to save in, if you have it.”
Who can get a Help to Buy Isa?
Help to Buy Isas are offered by many different high street banks and building societies.
Although they all offer the same government top up, the rates will vary so it’s worth shopping around to find the best deal.
Some banks let you open an account online and for others you’ll need to go into a branch to fill out the necessary paperwork.
You must be aged 16 or over to open a Help to Buy Isa and you’ll need to be a UK resident.
When opening an account, you’ll need your national insurance number too.
You must be a first-time buyer and not own a property anywhere else in the world.
If you already pay into another cash Isa, you will need to move the money out of it when you open a Help to Buy account.
To get the bonus, the property you’re buying must be in the UK, be the only home you own and where you intend to live, so you won’t be able to rent the entire property out.
You must also be buying the property with a mortgage.
You can also claim the bonus if you’re using a Help to Buy equity loan or with Shared Ownership.
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