Help to Buy ISA
22nd January 2016
With effect from 1 December 2015 first time buyers are now able to open a Help to Buy ISA, receiving a cash boost towards their first home from the Government. For those who are trying to get a foothold on the property ladder the ISA is extremely attractive, due to the generous 25pc cash boost by the Government.
How does the Help to Buy ISA work?
- First time buyers who use the ISA to save for their first home will be handed £50 for every £200 they save. This is the most that can be saved each month.
- The first £200 monthly payment can be boosted by an initial deposit of £1,000.
- The bonus from the Government on the £1,000 will be £250.
- The overall maximum amount the Government will contribute is £3,000. Therefore a total of £12,000 needs to be saved in the ISA to receive this.
How long will it take to get the maximum £3,000 amount?
- It will take 55 months (just over four and a half years) for a first time buyer to save up the maximum £12,000, which will then be topped up by £3,000 from the Government. This is assuming the £1,000 initial amount is put in upon opening the ISA and £200 per month is invested after that.
- There is no requirement to take out a mortgage with the Help to Buy ISA lender.
- Only one Help to Buy ISA can be opened per person. Those who are buying with a partner or a friend can open one each.
- The ISA can be transferred between different providers to procure a higher interest rate.
- The bonus can be put towards homes with a purchase value of £250,000 or less. For properties in London this figure rises to £450,000.
- The bonus cannot be used to pay other costs, such as legal fees. It can only be used towards the purchase price. First time buyers must take out a residential mortgage. It does not have to be a Help to Buy mortgage, but it can be.
- According to the ISA rules savers cannot open both a new Help to Buy ISA and a cash ISA in the same tax year.
- When the Help to Buy is closed the bonus is transferred to your solicitor, who completes the purchase of your home using the full bonus amount.
- If you change your mind and don’t buy a property you will miss out on the bonus. The money put in will still be tax-free and receive the interest rate.
- The minimum bonus is £400, so savers will need to open the Help to Buy ISA and then put £200 in each month for three months, plus the £1,000 initial deposit, to qualify.
If you would like further information or advice on the Help to Buy ISA, please call us.
Details taken from The Telegraph Money.