Time is running out if you haven’t taken advantage of the government’s offer of free money towards buying your first home.
That’s because the help-to-buy Isa – with which the government will give you up to £3,000 with only some strings attached – closes to new savers on 30 November. Provided you are in before that date, you can continue tucking money away for another 10 years.
So if you, or your offspring, are over 16 and have never owned a home but may well want to in the future, you might want to reserve your spot by signing up now. You can open an account with as little as £1, and don’t have to pay in every month, so some might say it’s a no-brainer to grab one now before they are withdrawn from sale.
However, to slightly confuse matters, there is another account that also offers a government cash bonus for savers: the lifetime Isa. So should you get that instead – or take out both? Here we run through what you need to know.
What is the help-to-buy Isa?
It was launched at the end of 2015, and the accounts are available from banks and building societies. If you are saving up to buy your first home and you put money into a help-to-buy Isa, the government will boost your savings by 25%. So for every £200 saved, first-time buyers can receive a bonus of £50.
Tell me more …
You can save up to £200 a month, though to kickstart your account, in the first month you can deposit a lump sum of up to £1,200. The minimum government bonus is £400. That means you need to have saved at least £1,600 into your Isa before you can claim your bonus. The maximum government bonus is £3,000. To receive that, you need to have saved £12,000.
What does the money have to be used for?
To buy a home up to the value of £250,000 outside London, or up to £450,000 in the capital. That price cap will be problematic for some. This must be your only home, and it can’t be rented out or used as a holiday home. However, the government won’t claw back bonuses from people whose circumstances change after they buy, and who need to rent out their property as a result.
To qualify, you must be 16 or over and be a first-time buyer – defined as someone who doesn’t own, and has never owned, a home anywhere in the UK or the world. If you have paid into a cash Isa this tax year, you will have to transfer the money over. A help-to-buy Isa has to be opened by the individual themselves – you can’t open one on behalf of someone else.
Can I open one with my partner?
If you plan to buy a home with someone else who is also a first-time buyer, they can open their own help-to-buy Isa. So a couple who save £24,000 between them can get a further £6,000 from the government.
What happens after 30 November?
They won’t be available to new savers any more – but if you opened your account before then, you can keep saving into it until November 2029, when accounts will close to additional contributions. You must claim your bonus by 1 December 2030.
Do I have to save £200 every month? No, the amount you save every month is up to you, as long as you don’t go over £200. However, you can’t roll over your allowance. So if you don’t save any money during January and February, this doesn’t mean you are allowed to save £600 in March.
Can I withdraw money from my help-to-buy Isa?
Yes, you can take out your money at any time.
So how does it work with the bonus money?
When you are close to buying the property, you will need to instruct your solicitor or conveyancer to apply for it, and this cash will then be added to the money you are putting towards your first home. But you only get the bonus money on completion – you don’t get it at the exchange stage, where buyers typically put down a 5% or 10% deposit to guarantee the purchase. However, you may be able to get the seller to agree to a smaller deposit at that point, on the basis that the bonus cash is on the way.
Will the interest I’ve earned count towards my bonus?
Yes, your bonus will be calculated based on the amount you have in your account when you close it.
Who offers these Isas?
Lots of banks and building societies. Top of financial information firm Defaqto’s table is Barclays, which is currently offering 2.58% interest on an account that can be opened with £1. Providers currently paying 2.5% include Nationwide, NatWest and Virgin Money, it adds.
Can I take advantage of the lifetime Isa too?
Yes, you can save into both schemes if you meet the eligibility criteria – but you will only be able to use the bonus from one to buy a house. The lifetime Isa lets you save for either a property or retirement. You can put away up to £4,000 each year and receive a government bonus of 25%. The money invested can be withdrawn after age 60, or earlier if it is being used to buy a first home worth up to £450,000 in the UK. Savers have the potential to earn a total of £32,000 in bonuses if they pay in the maximum £128,000 over 32 years from age 18. But to be eligible, you must be aged 18 to 39. And there is a hefty penalty if you withdraw money for any reason other than buying your first home, reaching 60 or if you are terminally ill.