First time buyer guide

 

Help to Buy ISA

The Help to Buy ISA is now closed to new savers. But, if you opened one before 30 November 2019 you can continue to save into your account until November 2029. Here's the lowdown on this savings account.
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What Is a Help to Buy ISA?

A Help to Buy ISA is a government savings scheme aimed at helping first-time buyers boost their mortgage deposit. For every £200 you put into your Help to Buy ISA every month, the government will give you £50 (25% bonus), up to a maximum of £3,000.

If you’re buying with a partner (who must also be buying for the first time), you could get a combined £6,000 government bonus towards your first home.

Help to Buy ISAs are no longer available to new savers. But if you already have one, you can keep saving into it. However, bear in mind that you will need to claim your bonus by 1 December 2030.

How Does a Help to Buy ISA Work?

You can save up to £200 a month into your Help to Buy ISA if the property you want to buy:

  • Is in the UK
  • Costs up to £250,000 (up to £450,000 in London)
  • It’s the only house you’ll own
  • It’s where you intend to live
  • And you buy it with a mortgage (no cash payers)

In order to claim your bonus – the minimum being £400 – you need to have saved at least £1,600 into your account when the house is bought. If by the time you want to buy you have managed to lay £12,000 aside, you can receive a £3,000 bonus.

Can I Take My Money Out Whenever I Like?

Indeed you can, even if you don’t buy your first house or hold a property costing more than the qualifying amount to target. You won’t lose the money and it will still be tax-free and interest-due. However, you won’t get the government bonus, but there’s no penalty attached.

This account also allows you to make partial withdrawals. The amount withdrawn won’t be eligible for the bonus. You can carry on contributing to your Help to Buy ISA and still get the bonus on whatever is left in the account when you decide to use it for a mortgage deposit. Just keep in mind that you won’t be able to put all the money you’ve withdrawn straight back in, the maximum amount allowed per month will still be £200.

How Do I Get the Bonus?

Once your offer has been accepted you will need to instruct your solicitor or conveyancer to apply for the bonus. This must be done after exchange of contracts but before completion. 

The bonus will then be added to the overall deposit you’re putting towards your first home. Bear in mind that you can only use your Help to Buy ISA bonus to buy the actual property – not for other costs like legal fees.

What Happens if the Purchase Falls Through?

If you’re gazumped or the property purchase falls through, you can reopen your Help to Buy ISA. You’ll have to ask your solicitor or conveyancer for a document – called a purchase failure notification – to prove the purchase didn’t complete. 

You can then take this document to any Help to Buy ISA provider and they will open an account for you. At this point, you will be able to put your money in as a lump sum. So, if for example, you closed your Help to Buy ISA with £5,000 in it, you will be able to deposit the same amount. 

One thing to bear in mind is that you will need to reopen the Help to Buy ISA within 12 months of the date you closed it. 

How Does a Help to Buy ISA Compare to a Lifetime ISA?

It’s no longer possible to take out a Help to Buy ISA. But if you already have one, read on to see how it compares to a Lifetime ISA.

The Lifetime ISA allows you to save more money, but the Help to Buy ISA offers more flexibility. Here are the main differences:

  • The Help to Buy ISA takes monthly contributions only, whereas the LISA also takes lump sums.
  • With a Help to Buy ISA you can save up to £2,400 per year (£3,400 in the first year), whereas with the LISA the maximum saving per year is £4,000.
  • With a Help to Buy ISA, you receive the bonus when you buy the house, whereas with the LISA it’s paid into your account monthly.
  • The maximum house purchase price with a Help to Buy ISA is £250,000 (£450,000 in London), whereas with a LISA it’s £450,000.
  • You can use your Help to Buy ISA savings to buy a house once you’ve saved £1,600 (which is possible within 3 months). But in order to use your LISA savings to buy a home, you need to have it open for over 12 months.
  • You can only use your Help to Buy ISA savings for the mortgage deposit, whereas the savings from a LISA can go towards the home or the mortgage deposit.
  • If you decide not to buy a home you can withdraw the money from your Help to Buy ISA at any time, but you won’t get the bonus. With a LISA you’d have to pay a 25% penalty charge and lose out on the bonus unless you wait till you’re over 60.
Lifetime ISAHelp to Buy ISA
Lump sumsYesOnly an initial £1,000 allowed (plus £200 monthly contribution)
Yearly saving£4,000£3,400 in the first year

£2,400 thereafter

Bonus paymentYearly (interest made on bonus)When house is purchased
Maximum home price£450,000£250,000

£450,000 (in London)

Can be used for a home purchaseAfter 12 months of LISA being openWhen you’ve saved £1,600 (possible within 3 months)
Can be used forHome & mortgage deposits or retirementJust mortgage deposit
Withdrawing money if not buying a homeYes, when you’re 60+ (if earlier you won’t get bonus)Yes, at any time but you won’t get the bonus

If you’re wondering whether you can have both a LISA and a Help to Buy ISA, the answer is yes. But you can only use the bonus from one of them towards buying a home. So, if you decide to use your LISA savings and bonus to buy your first property, you wouldn’t get the bonus for your Help to Buy ISA – but can still keep the money plus its interest in your account. Using the bonus from your Help to Buy ISA instead would mean that you’d be penalised if you withdrew money from your LISA to buy the property.

What if I Missed Out on the Help to Buy ISA?

If you didn’t open a Help to Buy ISA in time, you could consider a Lifetime ISA which – if you’re eligible – also offers a 25% government bonus.

In addition to the Help to Buy ISA, there are a number of products and schemes designed to help you save up to buy a home. Check out our Saving for a Deposit article to learn all about them.