Tue 11 Jun 2019
What are they? How do they work? How can they help you?
We all know it’s no easy rise climbing onto the property ladder, but schemes such as Help to Buy ISAs are there to help with the footing. However, new customers only have until the end of November, so attention all first-time buyers!
What is a Help-to-Buy ISA scheme?
It is a privileged time to be a first-time buyer in the UK. The stamp duty fee was recently abolished for properties worth up to £300,000 for first-time buyers, meaning the first-time buyer could end up saving up to £5,000 on stamp duty alone. For properties costing up to £500,000, the first-time buyer will pay no stamp duty on the first £300,000. Furthermore, a first-time buyer is usually more desirable to a seller as they do not need to sell a property, and as such will not involve a housing chain.
First-time buyers are advantaged in such ways for good reason. It’s an expensive journey buying and moving into your first property. There are all sorts of fees to cover, furniture and appliances to purchase and to be fitted, removal costs and, of course, saving up for the mortgage deposit. The deposit is usually 10% of the property’s overall value, but this percentage can vary.
To help first-time buyers get themselves onto the property ladder, back in 2013 the government introduced a scheme to try and help. The Help to Buy ISA is a type of individual savings account which is designed to help first-time buyers get onto the property ladder by helping them save money for a mortgage deposit. The government adds 25% to your savings, up to a maximum of £3,000 on savings of £12,000.
Just like any other ISA, the savings will be tax free. The key difference with this ISA is that the government will contribute to it as well. But there are more conditions and things you’ll need to know if you’re a prospective first-time buyer and are interested in such a scheme, so read on.
How do they work and what are the conditions?
The Help to Buy ISA scheme is available from a range of banks, building societies and credit unions. 25% of any contributions you make into your Help to Buy ISA will be added to by the government. For example, for every £200 you put away, the government will add £50. There is a contribution limit of £12,000 for the Help to Buy ISA, which means you can earn a maximum of £3,000 from the government.
You can use a Help to Buy ISA to buy any home worth up to £250,000 (or up to £450,000 in London). In order to be applicable for a Help to Buy ISA scheme, the minimum amount you will need to save is £1,600, which will thus be complemented by a £400 bonus by the government (25% of the total amount).
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, and you are both first-time buyers, you’ll be able to get up to £6,000 towards your deposit. This will only work, however, if you each have a Help to Buy ISA, not if you’re both sharing/ using one Help to Buy ISA. If you’re both using and contributing into the same Help to Buy ISA, the value allocation will not be doubled.
It is very important to remember not to apply for your government bonus too late too. After your offer has been accepted, that is the optimal time to instruct your solicitor or conveyancer to apply for your government bonus. If you wait until completion of the whole process, it will be too late. The bonus won’t be received until you have exchanged, then it will be added to the rest of the money you’re putting towards your first home. The bonus cannot be used for the deposit due at the exchange of contracts, to pay for solicitor’s or estate agent’s fees, or any other indirect costs associated with buying a home.
So, to recap. To open a Help to Buy ISA you can deposit up to £1,200. Whatever you save, 25% will be added by the government. If you have saved less than £1,600, you will not qualify for the government bonus. The maximum amount of money you can deposit into the scheme is £12,000, which equates to a maximum of £3,000 from the government.
Important facts to remember
– Help to Buy ISAs are only available until 30th November 2019. After this date, they won’t be available to new customers.
– If you opened your Help to Buy ISA before then, you can continue saving into that account after the above date.
– You must claim your government bonus by 1st December 2030.