Demystifying Help to Buy ISA’s (no longer available)
DO YOU WANT FREE MONEY?
Who doesn’t want free money?!
If you are thinking about buying a property (soon or not-so-soon), it is most definitely worth considering opening up a Help To Buy ISA (H2B ISA).
The deadline to open a H2B ISA is 30th November 2019 so it is something you need to act on fast if you think it is right for you.
But before you get involved, you probably have a million questions about what it a H2B ISA is, how it will help you and why it is worth getting one?
Difference between a normal cash ISA and H2B ISA?
ISA stands for Individual Savings Account. You can deposit money into the account and use it for absolutely whatever you fancy. To help save for a car, or a holiday, or travelling etc.
An ISA offers tax-free interest so there is a limit of £20,000 that can be deposited into the account each tax year.
A Help to Buy ISA is specifically for first-time property buyers only.
It pretty much does what it says on the tin… it helps (you) to buy. And let’s be honest here, we could all do with a little help when it comes to buying our first property. AM I RIGHT?
You can essentially use it like a savings account putting in money every month, but it is government backed meaning they top up the account with free money.
WHO DOESN’T LOVE FREE MONEY!?
The benefit of opening this account is that the government will add a 25% bonus on top of your savings that can go towards the purchase of your first home.
The requirements to opening an account:
You are over 16
You have never bought a house before (anywhere in the world)
You have £1 to open the account with
How much can I deposit into the account?
The account can be opened with up to £1,200 as one lump sum deposit.
Every month therefor after, the deposit allowance is limited to £200 per month.
In the first year you could deposit up to £3,400 in total (£1,200 initial deposit plus 11 months of £200)
The proceeding years, you could deposit up to £1,200 per year (£12 months of £200).
How much will the government pay out?
The maximum bonus paid out per person is £3,000. You would need to save a total of £12,000 in your H2B ISA.
Based on the monthly restrictions, if you deposited the maximum amount of £200 every month, it would take approx. 5 years to reach £12,000.
The minimum bonus paid out is £400, meaning you would need to have a total of £1,600 in the H2B ISA which could be achieved after the account being open for 3 months. (Initial £1,200 plus 2 months of £200).
How do I get the bonus (free money)?
The biggest downside to this ISA is that the money is not readily available.
To access the bonus, you must use your solicitor (or estate agent) to guide you through the process to claiming your bonus when you are ready to use it against your house purchase.
What can the money be used for?
You can only use the money to buy your first property up to the value of £250,000 outside London or £450,000 inside London.
The 25% bonus can only be applied to the house mortgage, and not against the initial house deposit.
This means once your house exchange has gone using your money (not including the bonus), and the sale is complete, the bonus is then awarded and can be used against the overall mortgage deposit.
Can I withdraw my money from this account?
You have easy access to your money, so can withdraw your money with no penalty charges.
However, the limit of £200 per month still applies even when you take money out.
E.g. You deposit £200 into the account at the start of the month but you realise you need that £200 to pay for a holiday so you withdraw it. You now cannot put any more money back into the account for that specific month as the £200 limit has been used up already (the deposit at the start of the month). To put any more money back into the account, you would have to wait until the next month.
Reasons why you should open one before the deadline:
It is free to open so no harm in doing so. Even if you aren’t thinking of buying a home yet.
You do not need to put the max amount of money in there every month e.g. if you can only save £50 per month, then not a problem – the same rules still apply.
If you change your mind and do not want to buy a house, there is no penalty and you can simply withdraw your money.
Something to consider:
You cannot use the free money from the H2B ISA in conjunction with a Lifetime ISA (LISA) so you need to decide which one is more suited to your situation.
Hopefully this helps demystify what a Help To Buy ISA is, the pros and cons of opening up an account and how you will benefit.
Happy Saving
Laura xx
