Help to Buy ISA (A complete guide)
In this brief guide, we are going to discuss the help to buy ISA, what you can use it for and who is eligible.
What is the Help to Buy ISA?
The help to buy ISA is a type of ISA with a tax-free wrapper where you can save up to £200 a month and an additional £1200 a month in your first month. The Help to Buy ISA comes with a maximum £3000 tax-free Government bonus. If you use the money in your help to buy ISA to buy a home the government adds 25% of whatever is in your help to buy ISA to your mortgage deposit as a bonus with two exceptions. You won’t be able to open a help to buy ISA after December 2019.
- You need at least £1600 saved to get the bonus
- The maximum bonus you can get is £3000 (so the maximum amount the government will pay you a bonus on is £12,000 but you can continue to save within the help to buy ISA)
Quick facts about the Help to Buy ISA:
- To qualify for the help to buy ISA you need to be a UK resident and over the age of 16. The deadline for applying for a Help to Buy ISA is December 2019 and you must use it for a mortgage deposit by December 2030 if not you will not be eligible for a bonus.
- You must be a first-time buyer to claim the help to buy ISA bonus
- You must be buying a home which you intend to live in
- To claim the help to buy ISA bonus the home must be your only home
- You must buy the home with a mortgage to claim the bonus
- You can only open the Help to Buy ISA per person and not as a couple etc The maximum property price you can purchase with the Help to Buy ISA is £450,000 in London and £250,000 anywhere outside London.
- You can only open one Help to Buy ISA although you can transfer it to a different provider at any time.
- Your maximum personal ISA allowance per year is £20,000. This means you can only contribute £20,000 per year into ISA accounts. The help to buy ISA has a limit on how much you can contribute to it of £200 per month so that means you can only contribute £2,400 per year excluding the initial maximum contribution of £1,200.
- Your solicitor applies for you to get the Bonus for your mortgage deposit
- You will get a help to buy closing letter from your help to buy ISA provider when you close your account.
- You can withdraw your money at any time but of course, the withdrawn amount will not count towards your bonus.
- You don’t have to save the maximum £12.000 to receive the help to buy ISA bonus but you must have paid in a minimum of £1,600
- Once you take a help to buy ISA, the mortgage must be a residential mortgage but you don’t have to take it from the same provider who gave you the help to buy ISA
- Once you’ve opened a Help to Buy ISA, you can’t open a cash ISA in the same tax year. If you’ve already opened a cash ISA this tax year, which started on 6 April 2019, you’ll have to take out your money before you can start paying into a Help to Buy ISA. If you’ve got £1,200 or less in your cash ISA, you can transfer this money directly into a Help to Buy ISA. You’ll have to move the full amount though – partial transfers aren’t allowed.
- Some Help to Buy ISA providers, however, allow what is known as a ‘split ISA’. This means that you can effectively hold a Help to Buy and a Cash ISA in the same wrapper, provided their combined value doesn’t exceed the £20,000 maximum you can invest in ISAs this tax year. Learn more about ISAs. The downside of opting for a split ISA is that rates may be lower if you link your ISAs together.
- The minimum bonus you can claim from the help to buy ISA account is £400 and this is based on the minimum savings which are eligible for a bonus being £1600.
- You can use the Help to Buy ISA scheme with other government schemes, including the Help to Buy: Equity Loan scheme and Shared Ownership.
- You won’t get interest on your help to buy ISA bonus as this is only paid upon completion.
- You can switch your help to buy ISA account to another provider but ISA rules apply so check with your old and new ISA manager to be sure you are not breaking any ISA rules.
Some help to Buy ISA providers include:
- Bank of Scotland
- Buckinghamshire Building Society
- Chelsea Building Society
- Chorley Building Society
- Clydesdale Bank
- Cumberland Building Society
- Darlington Building Society
- Monmouthshire Building Society
- Penrith Building Society
- Progressive Building Society
- Newcastle Building Society
- Nottingham Building Society
- Tipton & Coseley
- Ulster Bank
- Vernon Building Society
- Virgin Money
- West Bromwich Building Society
- Yorkshire Bank
- Yorkshire Building Society
Managing your help to buy ISA account
You can manage your help to buy ISA account by logging in online, setting up a standing order to pay the amount you want to pay into the account from your bank. Remember there is a maximum monthly contribution of £200 per month.
You may be able to make online withdrawals from your help to buy ISA account.
The funds in your account are covered by the financial services compensation scheme by up to £85,000 per account.
How much bonus can you earn with the help to buy ISA?
|Amount you must save||Bonus||Total|
|£1,600 (minimum amount)||£400 (minimum bonus)||£2,000|
|£12,000||£3,000 (maximum bonus)||£15,000|
How do you get your help to buy ISA bonus?
To get your help to buy ISA bonus you will need to close your help to buy ISA account with the provider and then request a help to buy ISA closing letter. This letter should show what your help to buy ISA account balance was before the request to close your account came in.
This is the amount your help to buy ISA bonus will be paid on so it is important that you notify the help to buy ISA provider to provide you with a final statement before they withdraw all the funds from your help to buy ISA account into another account. Your help to buy ISA closing letter should also come with a help to buy ISA closing statement.
To claim the help to buy ISA bonus your conveyancer (as only conveyancers can apply for the help to buy ISA bonus from the help to buy agent) will submit all the required documents including the help to buy ISA closing letter, your first-time buyer declaration, your national insurance number etc.
Once all the checks are completed you will then receive your help to buy ISA bonus through your conveyancer but this is then paid directly to your mortgage lender to cover any costs associated with the mortgage which you will have to pay. You can also choose what costs you want the bonus to go towards but the conveyancer will usually have to make this payment for you and you will never actually receive the money in your bank account.
The help to buy ISA bonus is only received one you have completed a home purchase and so the bonus doesn’t actually go towards your mortgage deposit but may be able to go towards other costs associated with the home buying process such as your first monthly mortgage repayment.
If you want to use the help to buy ISA bonus for your mortgage deposit then you can ask the seller if they will accept a reduced deposit for the time and then you can pay them one you receive your help to buy ISA bonus. If they don’t agree to this you can fund the mortgage deposit in full by using your own money and then use the bonus in a different way, for example, to pay off your first months mortgage.
Some conveyancer may charge you a fee of up to £50 for handling this process for you.
For you to be able to claim the help to buy ISA bonus you will need to be taking out a residential mortgage and not a buy to let mortgage or any other type of mortgage.
*As with all investing, your capital is at risk. Tax rules may change in the future. If you are unsure if a Help to Buy ISA is the right choice for you, please seek independent financial advice *
In this brief blog, we discussed the help to buy ISA. If you have any questions or comments, please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.