Help-to-Buy ISAs are a type of money saving designed to help First-Time Buyers in Doncaster save a deposit for their home. The Government will add 25% to your savings, up to a maximum of £3,000 on savings of £12,000.
Let’s cut it straight, come the 30th November 2019 the ISA will not be available to any new savers after this deadline, however, if you have already acquired and opened up an account with a bank or building society before then you can keep saving into your account until the 1st December 2030.
What exactly is a Help-to-Buy ISA?
This is a government scheme designed to help you save for a mortgage so that you can buy a home, if you’re stuck speak to Stephen Kerrigan, a Mortgage Advisor in Doncaster for any advice about starting up. To qualify you must be classed as a First-Time Buyer and not own any property on the market.
Savings are tax free just like with any ISA. However, with this, you will be given an added bonus of getting a Government contribution. But how does this work, what am I getting from it exactly? The government will top up any contributions you make by 25%, up to the contribution limit of £12,000. So, for every £200 you save, the government will contribute £50. This means you can earn a maximum of £3,000 from the government.
If you save up £1,600 which is the minimum amount you need to qualify for a bonus, you will be given a £400 bonus. You can start off the ISA with a deposit of up to £1,000, which then gives you a 25% boost from the Government. Help-to-Buy ISAs are available to each first-time buyer, not each home. So, if you’re buying a property with your partner, for example, you’ll be able to get up to £6,000 towards your deposit.
When should your solicitor or conveyancer apply?
I would recommend that you instruct your solicitor to apply for your bonus once your offer has been accepted. Don’t wait until your completion as this make it too late. Once they receive the Government bonus, it will be added to the money you’re putting towards your first home.
But, will my bonus contribute towards the deposit of my home? Absolutely yes, the government will add the bonus to your overall deposit. When calculating your mortgage, your lender will want evidence of your funds you have available. This will include the amount saved into your Help-to-Buy ISA. This will then include the amount of your bonus when the Lender is working out your loan amount.
Who can apply and Qualifies?
Young people aged 16-years’ and over
Anyone looking to buy a home worth up to £250,000
You can use the ISA on any mortgage, not just a Help to Buy
Anyone who is looking to buy a property abroad
Only one Help to Buy ISA only
How soon can you get the money?
Once your savings have reached the minimum amount (£1,600) you can claim your government bonus at any time. If you want to qualify for the maximum bonus of £3,000 it will take just over four and a half years.
It’s worth noting you need to claim your bonus through your solicitor or conveyancer before completion, but after exchange of contracts, which might be subject to a maximum fee of £50 plus VAT.
Maximum Contribution Running Total
Initial Deposit £1,200 £1,000
Year 1 £2,400 (£200/month). £3,400 + Int
Year 2 £2,400 (£200/month). £5,800 + Int
Year 3 £2,400 (£200/month). £8,200 + Int
Year 4 £2,400 (£200/month). £10,600 + Int
Year 5 £2,400. £12,000
Bonus £3,000 £15,000
Grand Total £15,000
The rates on your H2B ISA will vary and will be set by each provider. You won’t earn interest on your bonus because you don’t actually get the money until you buy your property. When you get a bonus, it’s calculated using the money you’ve saved and the interest built up while your account has been open.
Switching providers for your Help to Buy ISA
You’ll be able to switch from one provider to another whenever you like and as interest rates change in order to get the best deal.
The rules for transferring will be the same as for Cash ISAs.
Make sure you do this carefully so you don’t accidentally withdraw the money rather than transferring it.
Is a Help to Buy ISA right for you? That’s really up to you! So, the amount you can save each year in a Help to Buy ISA (£2,400 + the initial deposit) is a lot less than in a Cash ISA (£20,000 in 2018-19) the 25% boost offered by the government is much higher than you’d earn in interest alone. It’s also worth bearing in mind, if you’re a basic rate taxpayer, you’ll be able to earn tax-free interest up to £1,000 in a normal savings account (or up to £500 if you pay higher rate tax). So, if you want to save more than the maximum £200 per month, you might consider saving into a top rate savings account alongside your Help to Buy ISA.
What if I already have an ISA – Can I open up a H2B?
Yes, if you paid into a cash ISA and want to open a Help to Buy ISA in the same tax year, you need to transfer your active cash ISA to a Help to Buy ISA. You can transfer up to £1,200 of your active cash ISA balance into your Help to Buy ISA.
Anything more than this should be moved into either a stocks and shares ISA or a non-ISA account, where you will lose the tax benefits. The standard cash ISA and Help to Buy ISA allowance limits will still apply.