Help to Buy ISAs may be an attractive idea to secure your first home. But you’d better act quickly because you have less than 14 weeks to open your account.
The government-sponsored savings account is designed only for those saving for their first home. You are given 25 per cent extra on the savings in that account. This is designed to help you meet some of the costs of buying your first property.
The maximum bonus is £3,000, although it isn’t paid until after contracts are exchanged. It means it can’t be used for a deposit. And it is only available for homes up to £250,000. But that is quite generous for buyers in the North East.
Launched in December 2015 to help young people onto the property ladder, the Help to Buy ISA has attracted 1.2 million accounts.
But it is due to close on 30th November this year because a new Lifetime ISA scheme is proving to be more popular.
What The Mortgage Dog thinks
Help to Buy ISA
The Help to Buy ISA is available to first-time buyers aged 16 and over. You can make withdrawals anytime once you have saved £1,600.
So, the Help to Buy ISA is extremely useful if you are planning on buying your house soon. The Lifetime ISA, however, attracts a withdrawal charge if you take your money out in the first 12 months.
While the payment of the bonus doesn’t arrive until after your contracts are exchanged. That means it can’t be used for your deposit. But it is very useful for any legal fees, furniture or any other costs that you will need to meet when setting up your first home. And trust us, when buying any new home there will be items you need to pay for, especially furniture, fixtures or legal fees.
Help to Buys ISAs are worth considering if you’re looking to buy your first home soon. While the scheme closes this November, you can still keep your cash in there until 1st December 2030. After that, accounts close and if you don’t withdraw your money you’ll lose it.
However, chances are if you’re looking for your first home now, we’d expect you to find one long before 2030.
The only downside is that savers can only contribute £1,200 into a Help to Buy ISA in the first month and then up to £200 a month. This amounts to a maximum yearly savings of £3,400 in the first year and £2,400 thereafter.
This allows people aged 18 to 39 to save up to £4,000 a year. You can use it for either your first home or retirement. You can continue to save until you’re 50, but you have to withdraw your cash by the age of 60! The maximum bonus is £32,000 and can be used on a first time home of up to £450,000. The Help to Buy ISA only had that limit in London.
Any withdrawals within the first 12 months of your first payment into a Lifetime ISA will incur a 25% government withdrawal charge, which would mean you would get back less than you paid in. After that, you can withdraw money to buy your first home. For any other withdrawals before the age of 60, the government withdrawal charge will apply (unless you are diagnosed with a terminal illness).
Lifetime ISAs are not flexible, so it will not be possible for withdrawals to be made and replaced without affecting your annual Lifetime ISA allowance or your overall ISA allowance.
Can I open both?
You can open both a Help to Buy ISA and a Lifetime ISA. If you are not ready to buy yet, then consider using these for your savings. The Help to Buy ISA pays a better interest than a normal, everyday ISA. If you’re eligible for one, it’s worth considering opening an account.
You can save into both ISAs without falling foul of the ISA rule, but you have to make a choice between the two. This is because the Government will only apply a 25 per cent top-up on one.
Check your current outgoings, such as rent, bills, credit repayments etc to ensure you know what you can afford to save.
Whether you can afford to save in both or just one of the ISAs, they can be a real bonus for first-time buyers.
The Mortgage Dog is a mortgage broker based in the North East and does not give banking or financial investment advice. Our advice and services are for mortgages and mortgage protection only. Always do your own research if you wish to invest or save money and speak to a qualified adviser. For information, visit www.moneyadviceservice.org.uk