8 December 2015

With the Help to Buy ISA scheme launching on December 1st, and confusion still surrounding the scheme, Andrew Milnes from our mortgage partners, Mortgage Q looks to break it down for you.

What is the Help to Buy ISA scheme?

The Help to Buy ISA scheme has been set up to provide first-time buyers with a tax-free savings account to save up for a deposit, boosted by a government bonus.

First-time buyers can save a maximum of £1,200 for the first month, and £200 each month thereafter, and the government then provides a 25 per cent bonus on interest and contributions once the product is closed. This bonus is capped at £3,000, with the maximum a first-time buyer can save being £12,000. It would take you five years to reach this amount based on £200 a month saved. The scheme can be used for a deposit for any property under £250,000 outside of London, or £450,000 within, and can be used with any mortgage; it is not limited to Help to Buy mortgages.

What are the advantages of the Help to Buy ISA?

Good news! They're ‘stackable'. For example, if you're buying with another first-time buyer, you can both have a first-time buyer ISA, meaning there could be a potential deposit of 30,000 (2 x £12,000 in ISA and 2 x £3,000 government bonus added) between the two. Perhaps most notably, you can also combine the Help to Buy ISA with other savings to get together a larger deposit. You can switch lenders at any time to chase the best interest rate throughout the savings period.

The scheme is also open to any first-time buyer aged 16 and above, between 1 December 2015 and December 2019.

So, what are the downsides?

The downsides are few and far between with this scheme, with the main point to note being that you cannot have a cash ISA and a Help to Buy ISA open at the same time. However, as previously mentioned, there is nothing stopping you combining the ISA with other savings. Lastly, the bonus isn't paid directly to you. Once you close the Help to Buy ISA account down to transfer the funds, you receive a letter from your provider which you will then need to pass on to your solicitor, who will use it to apply online for the bonus. As a result, there can be a charge (up to a max of £60) for this service as it is classed as admin work.

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