Today sees the launch of the Help to Buy ISA; savings accounts aimed to assist aspiring first-time buyers get on the property ladder. They are available from banks and building societies and are only accessible to first-time buyers looking to build up enough cash for a house deposit.
The Government’s aim is to solve the current crisis of too many families being forced to rent a house as they cannot afford the large deposit required to take out a mortgage.
What are the incentives?
Any amount saved will be ‘topped up’ by the Government at the time of the house purchase by a bonus of 25%, up to a maximum of £3,000.
You can switch between providers in order to obtain the most competitive interest rates.
Eligibility and the fine print...
To qualify, savers must be UK resident, aged 15 or over, and buying a property in the UK for the first time. The house must NOT be for the buy-to-let market and must not exceed £250,000 (or £450,000 in London).
Due to limitations on what you can save in these accounts; you can deposit a maximum initial investment of up to £1,000, followed by monthly instalments of up to £200. In the first month, these limits can be combined if you wish, so you can start off with a deposit of £1,200. Once the balance reaches £12,000, it would then qualify for the maximum Government bonus of £3,000.
Couples can open one account each, meaning they could potentially claim a total of £6,000 from the Government. To qualify for the bonus, you have to have at least £1600 saved.
These schemes will be closed to new entrants from 30th November 2019, and the bonus must be claimed (through the purchase of a house) by 1 December 2030. The bonus would be claimed by the solicitor or conveyancer who handles the purchase of your house.
If you do decide to open a Help to Buy ISA, it is important to note that you are prevented from opening any other ISA accounts, but you may continue to hold existing ISAs.
On the face of it, these appear to be an attractive scheme; however with the average house deposit totalling £36,000 for a first-time buyer, other savings would still be required. The main attraction is the attractive interest rates currently being offered for these schemes, with Halifax currently offering the market leading rate of 4% per annum.
If you are planning to buy your first home in the near future, it could be well worth considering opening one of these schemes.