You can no longer open a new Help to Buy ISA. However, if you already have one, you can continue to save into the account. In this guide you can find out how Help to Buy ISAs work if you’ve already got an account.
What is a Help to Buy ISA?
Help to Buy ISAs are no longer available, but if you opened your Help to Buy ISA before 30 November 2019, the date new applications closed then you can keep saving into your account and earn a government bonus towards your first home.
A Help to Buy ISA is a government scheme designed to help you save for a mortgage deposit to buy a home. To qualify you must be classified as a first-time buyer and not own a property anywhere in the world.
Savings are tax free just like with any ISA product, however, a Help to Buy ISA gives you the added opportunity of earning a government bonus.
How do Help to Buy ISAs work?
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.
The minimum amount you need to save to qualify for a government bonus is £1,600 (which gives you a £400 bonus).
You can start off your ISA with an initial deposit of up to £1,200 which also qualifies for the 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 your solicitor or conveyancer should apply
Instruct your solicitor or conveyancer to apply for your government bonus once your offer has been accepted. Don’t wait until completion as this will be too late.
Once they receive the government bonus, it will be added to the money you’re putting towards your first home.
Will my bonus contribute towards the deposit to buy my home?
Yes, the government bonus will be added towards your overall deposit.
When calculating your mortgage, your lender will want evidence of the funds you have available. This will include the amount saved into your Help to Buy ISA. Your lender will then include the amount of your government bonus when working out your mortgage loan amount.
- You need to be a first-time buyer.
- You must be aged 16 or over.
- You can use it to buy any home worth up to £250,000 (or up to £450,000 in London).
- You can use a Help to Buy ISA with any mortgage; you’re not restricted to a Help to Buy mortgage.
- You can’t use a Help to Buy ISA if you’re going to rent out the property.
- You can’t use a Help to Buy ISA on an overseas property.
- You can’t have more than one Help to Buy ISA.
- You can’t open a Help to Buy ISA and a normal Cash ISA in the same tax year*.
*Some providers will let you save into a cash ISA and a Help to Buy ISA within the same ISA wrapper. However, the standard cash ISA and Help to Buy ISA allowance limits will still apply.
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.
How the figures add up if you save the maximum allowed under the scheme
||£3,600 + interest
||£6,000 + interest
||£8,400 + interest
||£10,800 + interest
||£200/month until you reach £12,000
Interest on your Help to Buy ISA
The interest rates on Help to Buy ISAs will vary and will be set by each provider.
You won’t earn interest on your government bonus unlike a lifetime ISA because you don’t actually get the money until you buy your property.
When you get your bonus, it’s calculated using the money you’ve saved, and the interest built up while your account has been open.
Managing your Help to Buy ISA
Switching between different Help to Buy ISA providers?
You’ll be able to switch from one provider to another whenever you like as interest rates change to get the best deal. Provided the recipient ISA provider accepts the transfer.
The rules for transferring will be the same as for Cash ISAs.
Make sure you do this through your ISA provider so you don’t accidentally withdraw the money rather than transferring it. Otherwise your money will lose its tax free status and eligibility to receive a government bonus
Check the rules for transferring your savings from one Help to Buy ISA into another in our guide Cash ISAs
Can I switch to a Lifetime ISA?
Yes, but the transfer will count towards the annual limit for the Lifetime ISA (currently £4,000 2020/21). You will not receive the Help to Buy bonus, but any transferred funds will qualify for the Lifetime ISA bonus subject to annual contribution limits.
How long are Help to Buy ISAs available?
You can no longer open a new Help to Save ISA.
If you already have one you can save into your Help to Buy ISA until 30 November 2029, with a further 12 months to claim your bonus until 1 December 2030.
Is a Help to Buy ISA right for you?
Although 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 2020/21) the 25% boost offered by the government is much higher than you’d earn in interest alone.
If you didn’t open one in time, then you may want to consider a Lifetime ISA which also offers a 25% bonus for eligible first-time buyers. To find out whether it’s worth transferring to a Lifetime ISA.
Can I re-open my Help to Buy: ISA account if my property purchase fails?
Yes, you have the right to reopen your account if your property purchase fails but you must present a Purchase Failure Notice (PFN) to your ISA Provider.
You will need to reopen your account within 12 months of the account closure date (which can be found on the closing statement). Once you have reinstated your account, you can save into your Help to Buy: ISA until 30 November 2029, with a further 12 months to claim your bonus until 1 December 2030.
Where to go for more information
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