Attention First Time Buyers: Time is running out for Help to Buy ISAs!

It was announced earlier this year the Help to Buy ISA will not be available to new applicants from 30 November 2019.

If you are a first time buyer and thinking about purchasing a property, you need to apply for a Help to Buy ISA before 30 November 2019 to ensure that you do not miss out. Once you have opened an account (from a deposit of £1 up to £1,200) you can continue saving until 30 November 2029 after which time it will close and your bonus must be claimed by 1 December 2030.

What is a Help to Buy ISA?

A Help to Buy ISA is a government scheme which was introduced to help first time buyers save and get on the property ladder.

The government will, on top of payments you make into the ISA account, reward you with a 25% contribution bonus. The maximum amount you can save into the account is £12,000 with payments of up to £200 per month. You can claim the bonus once you have saved a minimum of £1,600; this will give you a bonus of £400. If you save £12,000, you can claim a bonus of £3,000.

Who is eligible?
  • Help to Buy ISA’s are only available to first time buyers. A first time buyer is defined as an individual who has never owned a property or a share in a property in the UK or anywhere else in the world and who also intends to occupy the property being purchased.
  • Must be aged 16 or over.
  • Must be purchasing a property worth £250,000 or less (or £450,000 or less in London).
What are the advantages?
  • Maximum bonus you can receive is £3,000.
  • If you are buying a property with another first time buyer, you can both use the Help to Buy ISA scheme and claim a bonus up to £6,000.
  • The ISA account pays tax free interest whilst you save.
  • You can take out your savings at any time together with the interest but if you do not use the money towards a purchase you cannot claim the 25% bonus.
  • You can use the scheme alongside any mortgage product.
What are the disadvantages?
  • The bonus is paid on completion of your purchase of a property; it cannot be used towards your initial deposit before exchange of contracts.
  • The maximum amount you can save per month is £200 meaning that it will take you 5 years before you can claim the maximum bonus of £3,000.
  • You cannot use the Help to Buy ISA if you are planning to rent out the property, you must intend to live in the property.
  • 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.
  • If you are buying with someone else and they are not a first time buyer, you cannot claim the bonus. All purchasers must be first time buyers to qualify.

Many banks offer different Help to Buy ISA products, so it worth checking out all the different options and interest rates before opening your account.

I do not think a Help to Buy ISA account is right for me. What is a Lifetime ISA?

A Lifetime ISA can be used to save for your first home or towards retirement. You must be 18 or over but under 40 to open a Lifetime ISA.

Like a Help to Buy ISA, the government will add a 25% bonus to your savings. You can save a maximum of £4,000 per annum with a Lifetime ISA and the government will contribute a bonus up to £1,000 per annum. A Help to Buy ISA is capped and will only give you a maximum bonus of £3,000. The bonus on a Lifetime ISA is paid monthly straight into the account whereas the bonus on a Help to Buy ISA must be claimed before completion.

The Lifetime ISA limit of £4,000 per annum counts towards your annual ISA limit which is £20,000 for the current tax year.

The money you save in your Lifetime ISA must be used to buy your first home or for later in life (aged over 60). If you wish to withdraw your money for any other reason, you will pay a 25% withdrawal charge of the total you have saved. This means that you could get back less than you have paid in.

If you are buying your first home with a Lifetime ISA the following must apply:

  • You must be a first time buyer.
  • The house you are purchasing is worth £450,000 or less.
  • Your Lifetime ISA has been opened for at least 12 months.
  • You plan to live in the property you are purchasing.
  • You are buying a property with a mortgage.

If you are buying a property together with someone else and they have a Lifetime ISA they can use their savings and the bonus too, provided they are also a first time buyer. If you are purchasing a property with someone who is not a first time buyer you can still use the Lifetime ISA and bonus.

Note: you can only use a Help to Buy ISA or a Lifetime ISA when you buy your first home. You cannot use both. If you already have a Help to Buy ISA you can transfer funds to a Lifetime ISA. If you have a Lifetime ISA and want to use a Help to Buy ISA instead, you will pay the 25% withdrawal fee.

At Crane & Staples, we are experts in helping first-time buyers through their first purchase. Please contact our Property team if you require any advice or assistance.