What is the Help To Buy ISA?
The Help-To-Buy ISA is the latest government initiative which has been implemented to aid young couples and families who are struggling to get on the housing ladder. With the banks unwilling to lend unless the mortgage applicant has a higher deposit, the Help-To-Buy ISA is a government incentive which says “if you save, we will help”.
Outlined in the March 2015 budget by Chancellor George Osbourne, the Help-To-Buy ISA has been developed as a result of the success of the original Help-To-Buy scheme, which was launched in 2013. With 83,000 people helped under the original scheme, the government is hoping the new ISA is going to build on the success of the help to buy initiative and continue to help young people get on the housing ladder.
How does it work?
Available through banks and building societies, the help-to-buy ISA will be available to anyone who is saving up to purchase their first home. The money saved in the ISA will be topped up with an additional 25% by the government upon purchase of their first property.
The maximum an individual can save each month is £200, and the maximum any one individual can save is £12,000 meaning the government will contribute a maximum of £3,000 when you purchase your first property. For basic rate taxpayers, this will be equivalent to saving completely free of tax for their first home.
The additional bonus for savers is that the help-to-buy ISA is limited to one per person as opposed to one per household so couples can receive up to £6,000 if they both individually save the maximum of £12,000.
The help-to-buy ISA operates in much the same way as other ISA accounts in regards to the saver can still earn a rate of interest on the ISA as set by the provider, the bonus upon property purchase will also apply to the interest that is built up during the period the account is open, up to the maximum bonus of £3,000. The ISA is also eligible to be transferred between providers to ensure the saver gets the best deal.
A further benefit to the saver is that the maximum £3,000 bonus provided by the government is tax free.
Conditions On Purchase
There are certain conditions for the saver to be aware of before signing up to the help-to-buy ISA:
- The government bonus can only be put towards a first home located in the UK which a purchase value of £450,000 or less in London and £250,000 or less in all other areas of the UK.
- The government bonus can only be used towards a property that is not being used for the first time buyer to live in as their only residence and not buy-to-let. This will be enforced by the scheme administrator.
- The government bonus can be claimed at any time, subject to a minimum bonus of £400.
- Accounts are limited to one per person rather that one per home so those buying together can both receive a bonus.
Help-To-Buy ISA – Start Date & Duration
The government has announced that the help-to-buy ISA will be available from Autumn 2015, allowing an initial deposit of £1,000 so savers will benefit from the bonus as if they had started saving between budget day and the date that the scheme opens.
Savers will be able to open a help-to-buy ISA for a four year period after the scheme officially opens, however once opened the saver has an unlimited duration of time to deposit and no time limit in which to use the bonus.
If you are looking to save enough to purchase your first property, or you are a parent researching for your son or daughter, get in touch today for more information of the help-to-buy ISA and what else we can do to get your financial affairs in order.