The Help to Buy Isa scheme launches a month from today, but what do we really know about the latest initiative to help first-time buyers?
The scheme will allow prospective buyers saving for their first home to deposit up to £200 a month into a Help to Buy Isa, with the government topping up these savings by 25% up to a maximum bonus of £3,000.
Help to Buy Isa savings can be used to purchase a property worth up to £250,000, or £450,000 in London. As the bonus will be paid per person rather than per property, if you’re buying with another person you can open separate accounts and jointly earn a bonus of up to £6,000.
- If you want to talk to a finance expert about the Help to Buy Isa, contact the Which? Money Helpline
- For impartial, no-obligation advice about getting your first mortgage call Which? Mortgage Advisers on 0808 252 7987
What’s the latest news on the Help to Buy Isa scheme?
The government has now released details of the five steps first-time buyers will need to take to get the Help to Buy Isa bonus:
- Save money for your deposit into a Help to Buy Isa.
- Close the account when you’re ready to buy your first home; you will then receive a closing letter from your Isa manager.
- Give the closing letter to your solicitor.
- The solicitor uses the letter to apply for your government bonus.
- The bonus is transferred to your solicitor, who completes the purchase of your home using the full bonus amount.
Your bonus will be calculated based on the amount of money in your Help to Buy Isa at the time of closing, which includes any interest you’ve accrued.
The Treasury has also confirmed that the government bonus can only be put towards the purchase price of your home, not any other costs such as legal fees.
Which banks and building societies are offering Help to Buy Isas?
Virgin Money and Natwest told Which? that they will be offering Help to Buy Isas from the launch date on 1 December.
Of the other known participants, Barclays, Halifax, Lloyds and Bank of Scotland confirmed they are launching Help to Buy Isas but didn’t say when this will be, and Santander and Nationwide declined to comment.
Leeds Building Society, meanwhile, said that it has no plans to release a product on the launch date, despite rumours to the contrary earlier this year.
This means that with just a month to go, we still don’t know what interest rates might be on offer from the banks and building societies taking part, or whether any further deals will be available.
Find out more: are you ready to be a first-time buyer? – ask yourself these key questions before taking the plunge.
What is a Help to Buy Isa?
You can learn the basics of how Help to Buy Isas will work in our two-minute video:
First-time home buyers (people who have never bought another property) aged 16 or over can open a Help to Buy Isa with an initial deposit of up to £1,200. This includes the usual monthly maximum of £200 plus a further £1,000 which is allowed as a one-off contribution when you open the account.
If you want to contribute less than this, that’s fine. However, the minimum bonus payment is £400, so you will need to save at least £1,600 in your Help to Buy Isa to earn this.
Bonuses are paid upon purchasing a property, and the Help to Buy Isa can (but doesn’t have to) be used alongside other government incentive schemes such as Help to Buy equity loans and shared ownership.
What are the downsides of Help to Buy Isas?
The Help to Buy Isa scheme might be an attractive option for buyers who want to save for a deposit in the medium term, but may not be the best choice if you want to purchase a property sooner.
In addition to the initial deposit of £1,000, you can only save up to £2,400 a year in your Help to Buy Isa, which means it would take you a minimum of four-and-a-half years to save £12,000 and benefit from the maximum government bonus of £3,000.
You should also bear in mind that if you have already contributed to a cash Isa within the 2015/2016 tax year, which started on 6 April 2015, you won’t be able to open a Help to Buy Isa until April 2016 as you can only pay into one cash Isa per tax year.
Find out more: delve into the details in our Help to Buy Isa guide.
This story was amended on 2 November 2015 to include extra information released by the Treasury.
- Get the lowdown on purchasing your first home with our first-time buyer guide
- Take a look at our advice on how to save for a mortgage deposit
- Find out how to get the best mortgage deal
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