Today marks exactly one month until the Help to Buy Isa, the government-backed savings initiative for first-time buyers, closes to new savers.
Help to Buy Isas will no longer be available to new applicants after 30 November, closing the door to the generous 25% government bonus if people don’t apply before that date.
The lifetime Isa could be a good alternative, as it also pays the 25% bonus – but these accounts work quite differently, and come with caveats that may be off-putting to some savers.
So, while there’s still time to sign up, we reveal the best rates currently available on Help to Buy Isas and investigate what the banks plan to do after the 30 November deadline.
What are the best Help to Buy Isa rates?
Between its introduction in December 2015 and 31 March 2019 (the most recent data that the government has published), the Help to Buy Isa enabled 310,658 first-time buyers to earn an average bonus of £920 to put towards their first home.
Couples and friends can pool their bonuses when buying a property together, and a total of 234,074 property completions had been supported by the savings scheme at the last count.
The table below shows the top 10 Help to Buy Isas based on interest rates. The links will take you through to our comparison site, Which? Money Compare.
|Penrith Building Society Help to Buy Isa||3%||£1 minimum initial deposit. Only available to those with a Cumbria postcode.|
|Vernon Building Society Help to Buy Isa||2.85%||£1 minimum initial deposit. Only available to those who live within 25 miles of Stockport.|
|Darlington Building Society Help to Buy Isa||2.8%||£1 minimum initial deposit. Only available to those with postcodes DL, DH, SR, TS, YO and HG.|
|Barclays Help to Buy Isa||2.58%||£1 minimum initial deposit.|
|Newcastle Building Society Help to Buy Isa||2.56%||£1 minimum initial deposit.|
|Nationwide Help to Buy Isa||2.5%||£1 minimum initial deposit.|
|Virgin Money Help to Buy Isa||2.5%||£1 minimum initial deposit.|
|NatWest Help to Buy Isa||2.5%||£1 minimum initial deposit.|
|Buckinghamshire Building Society Help to Buy Isa||2.5%||£1 minimum initial deposit.|
|Ulster Bank Help to Buy Isa||2.5%||£1 minimum initial deposit.|
Source: Which? Money Compare. Correct on 29 October 2019, but rates are subject to change.
You’ll notice that the three highest-paying accounts are only available to those who live near the respective building societies.
For accounts that are available nationwide, the top rate comes from Barclays at 2.58%.
While this easily beats the current rate of inflation (1.7% in September), it is still 0.42% short of Penrith Building Society, which tops the table.
What will Help to Buy Isa providers do next?
We asked 24 Help to Buy Isa providers to tell us how they will be supporting first-time buyers saving for their first home after 30 November.
This is particularly important given that there are currently only 13 lifetime Isas on the entire market, and most of these are stocks and shares Isas which may charge fees.
We received responses from 12 of the banks and building societies we contacted.
The bad news? None of the providers confirmed that they would be launching lifetime Isas, and they didn’t have any alternative savings options that paid as well as the Help to Buy Isa.
If no one else decides to launch a lifetime Isa, savers wanting that 25% government bonus will have to choose from the existing options – of which only four allow you to make cash investments.
Some Help to Buy Isas are even closing before the deadline: Tipton & Coseley Building Society – which previously offered the second-highest rate – withdrew its Help to Buy Isa at the end of September.
A spokesperson told us this was a result of ‘a significant increase in the number of new accounts being opened, resulting in us surpassing our fundraising requirement for the year’.
The good news? Several providers are ‘considering’ lifetime Isas as an option for the future, but wouldn’t reveal whether this was a distant possibility or more imminent.
A spokesperson from Lloyds Banking Group, covering Halifax, Lloyds Bank and Bank of Scotland, told us it is reviewing the ‘potential role’ of the lifetime Isa as part of its offering.
Monmouthshire Building Society told us it wasn’t interested in launching a lifetime Isa when the product first came out, but that it’s now ‘potentially on the agenda’.
Barclays said it is currently reviewing its range of first-time buyer savings options, but didn’t have any further updates.
Lifetime Isa alternatives
A couple of providers also offer their own accounts solely for first-time buyers, often with preferential rates.
For instance, Monmouthshire Building Society’s First Home Bonus Saver pays 5% AER on closure, but to earn that rate you must take out a residential mortgage with the provider within five years of opening the account.
You’ll need £20 to open it, and you can pay in up to £6,000 per year (or £12,000 if it’s a joint account). You’re only permitted to make four withdrawals during this time.
Breaching these rules means you’ll only earn 1% AER.
- Find out more: Help to Buy Isas explained
What happens if you already have a Help to Buy Isa?
You don’t need to do anything if you already have a Help to Buy Isa. You’ll be able to continue saving, and will be eligible for the government bonus, until 1 December 2030.
The only people who need to take action are those who haven’t yet opened a Help to Buy Isa but want one.
Help to Buy Isa or lifetime Isa?
Once Help to Buy Isas close to new savers, the main alternative will be the lifetime Isa, which is aimed at those saving for their first home or retirement.
Lifetime Isas have some similarities to the Help to Buy Isa, in that they also aim to help first-time buyers get on to the property ladder and give savers a 25% government bonus in addition to the AER or investment interest.
But there are some key differences you should be aware of:
|Help to Buy Isa||Lifetime Isa|
|Who can open it?||Anyone aged 16 or over who has never owned a property.||Anyone aged 18 to 39, but if you want to put your savings towards a property, rather than accessing it in retirement after the age of 60, you can’t have owned a home before.|
|What kind of Isa is it?||Cash Isas only.||Cash Isa or stocks and shares Isa.|
|How much can I pay in each year?||A maximum of £3,400 in the first year; £2,400 each year afterwards.||Up to £4,000 a year.|
|Can you deposit a lump sum?||No, you can pay in a maximum of £200 a month, except upon opening the Isa when you can deposit an extra £1,000.||Yes, but no more than £4,000.|
|What is the maximum government bonus?||£3,000 if you save £12,000.||£32,000 if you save the maximum amount of £128,000 over 32 years between the ages of 18 and 50; you cannot make any further deposits after you turn 51.|
|When is the bonus paid?||The bonus is paid to your conveyancer/solicitor upon completion.||Monthly, into your account.|
|Does the property have to be a certain value?||Up to £250,000 in most areas of the UK; up to £450,000 in London.||Up to £450,000 anywhere in the UK.|
|When can the account be used to buy a home?||Once you’ve saved at least £1,600 to earn the minimum £400 bonus – this can be done in three months if you deposit the maximum amount each month.||You must have had the lifetime Isa for at least a year.|
|How many providers offer this Isa?||There are 25 Help to Buy Isa providers, but some local building society accounts are only available to those who live in certain areas.||There are currently 13 lifetime Isa providers offering 14 accounts. Four are cash Isas, eight are stocks and shares investment accounts. One is only for people associated with the Met police, and another is only accessible to financial advisers.|
|Are there fees?||No.||There are no fees with cash lifetime Isas, but many stocks and shares accounts do charge fees. What you’ll pay varies between providers.|
|Can I withdraw the money if I’m not buying a house?||You can withdraw money at any time, but you won’t receive the bonus unless you’re buying a property.||You can withdraw money, but unless you’ve been diagnosed with a terminal illness or you’re aged 60 or above, you’ll be charged a 25% withdrawal penalty.|
|When can I apply?||Until 30 November 2019.||There is currently no end date.|
|Can I transfer this Isa?||You can transfer to another Help to Buy Isa, or lifetime Isa. If you’re transferring to a lifetime Isa, you can only use the bonus from one account to put towards buying a property.||Some lifetime Isas accept transfers, but not all of them. If you transfer out to a different type of Isa, you’ll be charged the 25% withdrawal penalty.|
|Can I open more than one?||No.||Yes, but you can only open and pay into one in each tax year.|
For more information on how lifetime Isas work and which providers offer this kind of account, see our full guide on lifetime Isas.
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