The government’s Help to Buy Isa, a savings product that is specifically geared up to help first-time buyers save for a home, is set to close to new savers on 30 November 2019.
The Isa, which was launched in 2013, has paid out 225,618 bonuses which have helped first-time buyers purchase 169,980 properties. Couples buying a home together are able to save separately and each claim their own bonus.
The government claims that first-time buyers using Help to Buy Isas are able to buy a property three years sooner than those who do n0t use the scheme.
Which? explains how a Help to Buy Isa works, the key differences between a Help to Buy Isa and a lifetime Isa, and whether you should consider opening one before it’s too late.
- For free advice on financing your first home, from saving a deposit to taking out a mortgage, call Which? Mortgage Advisers on 0800 197 8461 or fill out the form at the bottom of the article for a free callback.
What is a Help to Buy Isa?
A Help to Buy Isa is a government savings product specially for first-time buyers.
All savings held within the Isa are tax-free, and the government pays an additional 25% on what you save, provided it’s put towards the cost of your first home.
However, there are some caveats to bear in mind:
- You can only pay in up to £200 a month (with an extra £1,000 when you first open the account)
- You must have saved at least £1,600 to qualify for the minimum £400 bonus
- The maximum government bonus is £3,000 – which you’ll qualify for if you save £12,000 or more
- The property you buy can be worth up to £250,000, or £450,000 if you’re in London
- The government bonus isn’t paid directly to you, but to your solicitor after the completion of the property purchase. This also means you can’t put the bonus towards the exchange deposit.
If you’ve already opened a Help to Buy Isa, you have until 1 December 2030 to buy your first home and claim your bonus. If you haven’t yet opened an account, you’ll need to do so before the end of November, as the government will be withdrawing the product from the market at that point.
- Find out more: Help to Buy Isas explained
What are the best Help to Buy Isa rates?
As well as the government bonus, a Help to Buy Isa will also pay interest like any other savings account. The table below shows the nationally available accounts with the highest Help to Buy Isa rates. The links will take you through to Which? Money Compare, the Which? comparison site.
|Account||AER||Minimum initial deposit|
|Barclays Help to Buy Isa||2.58%||£1|
|Newcastle Building Society Help to Buy Isa||2.56%||£1|
|Nationwide Help to Buy Isa||2.5%||£1|
|Virgin Money Help to Buy Isa||2.5%||£1|
|NatWest Help to Buy Isa||2.5%||£1|
Source: Which? Money Compare. Correct 7 January 2019.
Some regional building societies offer even higher rates, but are only available to customers who live nearby.
Penrith Building Society, for instance, pays 3.00% AER on balances over £1 – but only those with a Cumbria postcode can open accounts with the bank.
We recently looked at which regional banks and building societies offer the best deals – you can read our news story, Are top savings rates hiding on your local high street?, for more details.
What savings alternatives are out there for first-time buyers?
If you miss the November deadline, or don’t think a Help to Buy Isa is right for you, there are other products to help first-time buyers.
The lifetime Isa is a similar government savings product, geared up to help both first-time buyers and those who want to save for retirement.
With this, you’ll also receive a bonus of 25% on what you pay in.
As with the Help to Buy Isa, the lifetime Isa comes with restrictions. They include:
- Lifetime Isas can only be opened by those aged between 18-39.
- You must have had a lifetime Isa open for at least a year in order to qualify for the bonus.
- The maximum value of property you can buy is £450,000, anywhere in the UK.
- You can pay in up to £4,000 a year.
- The government bonus is paid monthly into your account, and can be put towards any of the costs associated with buying your first home.
- If you decide not to buy your first home with the money, you will have to wait until you turn 60 to access it – otherwise you’ll have to pay a withdrawal penalty.
Find out more: lifetime Isas
Savings accounts for first-time buyers
Some banks and building societies have special products to help first-time buyers save for a deposit and the associated costs of buying your first home.
Monmouthshire Building Society First Home Bonus Saver pays 5% AER for the first five years if you deposit a minimum of £20. After five years, the AER reduces to 1%.
It’s a high rate, but you won’t benefit from the 25% government bonus, and should note that the account is only available to customers who live in the bank’s catchment area.
The Hanley Economic Building Society Home Deposit Saver is available nationwide, and pays 3.10% AER when you make a minimum initial deposit of £100.
This account won’t pay the government bonus either, and comes with other restrictions.
You’ll lose 180 days’ interest as a penalty if you spend the money on anything other than a housing deposit – and you’ll also incur a penalty if you don’t opt for a mortgage linked with Hanley.
- Find out more: how to save for a mortgage deposit
Saving up for your first home?
Even if you’re still in the very early stages of saving up for a deposit, getting professional advice tailored to your circumstances can be really helpful – you can find out how much you’ll need to save and the best ways in which to do this, as well as what kind of mortgage options are out there when you’re ready to buy.
The friendly team at Which? Mortgage Advisers can answer even the most basic of questions, and are happy to help you reach your goal of owning a property.
The expert advisers are completely impartial, and can help find the best deal for you when you’re ready.
You can call them on 0800 197 8461 or fill in the form below for a free callback.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Please note that the information in the table(s) above is for information purposes only and does not constitute advice. Please refer to the particular terms and conditions of the savings account provider before committing to any financial products.
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.