10 pros and cons of the Help to Buy ISA
10 pros and cons of the Help to Buy ISA
The Help to Buy ISA, which gives you free money from the Government, is only open to new applicants for another six weeks. Here’s a reminder of what it’s all about.
By Annabel Dixon
September 13, 2019
Interested in the Government’s Help to Buy ISA? With the deadline for applications closing in just six weeks, you’d better get your skates on.
The Help to Buy ISA is a special savings account designed to help first time buyers get on the property ladder.
You can make a regular saving of up to £200 a month into the account (with an additional boost of £1,200 in the first month) and any interest you receive on your cash will be paid tax-free.
When you come to buy a home, the Government will top up your savings with a bonus of 25% – also tax-free. The maximum bonus available is £3,000 which applies to £12,000 savings.
Although the Help to Buy ISA will shut to new applicants on November 30, if you already have an account you can keep saving into it until November 30, 2029 when it will close to additional contributions too.
Still not sure? Here’s 10 pros and cons to the accounts.
10 pros of the Help to Buy ISA
- Tax-free interest
As the account is an ISA, it accounts for part of your annual ISA allowance and you won’t pay tax on any interest you earn.
- The Government’s 25% bonus
The effect of this currently outstrips even the top savings rates on the market.
- Keep saving for as long as you like
Once the account is open, you can pay in £200 a month indefinitely until November 2029. You will have to claim your bonus by December 1, 2030 (although this could change under a different Government).
- Access to your cash
You can get your hands on your savings – plus the tax-free interest they’ve generated – at any time. But if this is before you buy a home, you’ll forfeit the Government bonus.
- You can have one account each
So, if you’re buying as a couple, the maximum bonus is £6,000.
- Use it on any kind of property
That means a new-build or re-sale. You don’t need to go through your local housing association. It just has to be in the UK and bought for you to live in.
- Plenty of providers
Take your pick and compare interest rates from the likes of Barclays, Lloyds, Nationwide, NatWest, Santander and Virgin Money. You can find a comprehensive list of providers on the Government’s website.
- Free to switch
If the rate becomes uncompetitive, you’re free to switch to a better account. Just make sure you carry out an official ISA transfer to retain the tax-free status on your cash.
- Don’t have to dump previous years’ ISAs
They can sit alongside your Help to Buy ISA. However, you can only pay into one cash ISA (such as Help to Buy) and one stocks and shares ISA in any single tax year.
- Can be used in conjunction with other first time buyer schemes
Such as the Government’s Help to Buy and shared ownership schemes.
10 cons of the Help to Buy ISA
- Saving can be slow
With maximum contributions standing at £200 a month, it will take 4 to.5 years worth of saving to claim the maximum £3,000 Government bonus.
- Strictly for first time buyers
To qualify for the account, you must never have owned a home (or even a share of one) in the UK or anywhere else in the world. This also applies to couples, so if one partner owns or has previously owned property (including inherited), that person will not be eligible.
- Minimum savings to get bonus
You’ll need a balance of at least £1,600 to qualify for the 25% Government bonus which, in this case, would be £400.
- No interest paid on Government bonus
You’ll just get the flat 25% of the balance you’ve managed to save between £1,600 and £12,000.
- Price cap on property value
Homes you can buy with the account must cost less than £250,000 – or £450,000 in London – and be bought with a mortgage. If you’re buying under a shared ownership scheme, these caps apply to the whole property value, not just the share you are buying.
- You can’t put the Government bonus towards your initial deposit
That’s because it’s only paid on completion to prevent savers from nabbing the bonus and then pulling out of the purchase.
You can still use the funds you’ve saved into the Help to Buy ISA yourself, plus the tax-free interest, for the lump sum deposit, which is paid at exchange of contracts, but you will have to wait until completion to add the Government bonus.
This should be explained to the seller through your solicitor, so they are comfortable that the Government bonus will be forthcoming
- Bonus will be paid to your solicitor
The Government pays its bonus direct to your solicitor or property conveyancer just before completion – and they will need to apply for it on your behalf. You are likely to be charged £50 (+VAT) for them to make the bonus application.
- Not available as stocks and shares
Unlike the Lifetime ISA- which also pays a tax-free Government bonus – the Help to Buy ISA is available as just cash.
- Time limit to open an account
Banks and building societies will pull their Help to Buy ISAs off the shelves in December 2019.
- Transfers in from existing ISAs are limited
You can make a ‘transfer in’ from an existing ISA into a Help to Buy ISA, but only if the balance being transferred is £1,200 or less. That’s because this is the maximum you can open the account with.