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Help to Buy ISA: A quick guide

Buying your first home is a substantial investment and possibly one of the biggest decisions you will have to make, it can also be a very exciting decision at the same time.

As a young person, one of the biggest hurdles you may face is having a sizable deposit to be able to secure a mortgage. If you’re a first-time buyer, there are several schemes offered by the government to help first time buyers save enough towards their first home.

The Help to Buy ISA, launched by the government in December 2015, can help you take advantage of tax-free savings and potentially boost your savings by 25% when you buy your first home to help you get that first foot on the ladder.  This can be particularly useful in today’s low interest environment where cash held on deposit earns very little interest.

How it works

If you choose to save into a Help to Buy ISA the government will top up your savings by adding a 25% bonus, up to a maximum of £3,000.  A minimum bonus of £400 applies, so you will need to save at least £1,600 before qualifying for a 25% bonus.  The maximum amount the government adds as a bonus is £3,000, and to receive this you will need to have saved £12,000 in the account.

You can save up to £1,200 in the first calendar month of subscription and a maximum of £200 every month thereafter.  Any interest earned on your Help to Buy ISA also counts towards your savings balance.

Who is eligible?

All first-time buyers, who are resident in the UK for tax purposes and aged 16+, and buying a home worth up to £250,000 (£450,000 in London) can open a Help to Buy ISA. The Help to Buy ISA is available to each first time buyer, so if you are a first-time buyer purchasing a house with another first-time buyer you can both open an account to enable both parties to receive the bonus.

You can use the Help to Buy ISA with any mortgage, you do not necessarily need to get a Help to Buy mortgage. To find out about more eligibility requirements you can visit the official government’s Help to Buy website: https://www.helptobuy.gov.uk/

Opening your ISA

If you want to open a Help to Buy ISA but have already paid into a cash ISA for the current tax year, you will need to transfer your savings to either a Help to Buy ISA, a Stocks & Share ISA or an Innovative Finance ISA. However, some providers do offer ‘split ISAs’ to effectively allow you to use two accounts.

There are lots of different Help to Buy ISA providers. If you are considering opening a Help to Buy ISA you may want to visit a comparison website to compare the various products that are available and contact the provider to discuss the options they have to work out which one is best for you.

You will be able to open a Help to Buy ISA until 30 November 2019.  After that date, Help to Buy ISAs will not be available to new savers, but if you opened your Help to Buy ISA before then you can continue saving into your account until 30 November 2029 when accounts will close to additional contributions.  You must claim your bonus by 1 December 2030.

Claiming your bonus

The aim is for the bonus to reduce the overall size of your mortgage by increasing the amount of equity you own in the house. Your bonus from the government cannot usually be used with the exchange deposit, meaning that you are not able to rely on the bonus to top-up your deposit.

When you are ready to buy you should let your solicitor or conveyancer know who will be able to apply for the bonus on your behalf.

Win win?

If you are considering buying your first home but are worried that you might change your mind, it is worth bearing in mind that you can withdraw money from your Help to Buy ISA at any time (you just would not be able to claim your government bonus).

With the minimum amount you need to save in the account to get a bonus being £1,600, even if you are considering buying your first house fairly soon a Help to Buy ISA still might be worth considering.