Help to Buy ISA: How to make the most of your savings

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MoneyPlus Features Team

2nd December 2015 at 4:22pm

How to make the Help to Buy ISA work for you

The new Help to Buy ISA launched on 1 December, with the aim of helping those who want to buy property build up enough savings for a deposit. It’s already generating a lot of interest from 18-35 years olds, according to a Sky News report on launch day.

With prices threatening to put buying a property out of reach for many people, the Help to Buy ISA is one of a number of government measures designed to help people get a foot on the property ladder. The London Help to Buy equity loan and the Help to Buy Shared Ownership schemes were unveiled in the Chancellor’s Autumn Statement in November. We’ll cover these in detail in the near future.

Turn £12,000 of savings into £15,000                           

Help to Buy ISAs are available from banks and building societies and any interest and gains are tax free. Interest rates vary, with some providers offering rates of around 2% – and even 4% – but the real attraction is the government bonus which could be worth thousands of pounds on top, turning savings of £12,000 into £15,000 – making saving for a property deposit that bit easier.

Here’s what you need to know about Help to Buy ISAs:

  • They are a type of Cash ISA available from 1 December 2015 for first-time buyers only
  • Savers can deposit up to £1,200 in the month they open the account and up to £200 in each subsequent month, up to a maximum of £12,000 (including interest)
  • Some providers have set a minimum monthly level of savings – these could vary by provider
  • You are able to continue to save money into a stocks and shares ISA, even if you open a Help to Buy ISA
  • You can put money into a cash ISA and Help to Buy ISA in the same tax year, but you will have to take additional steps:
    • If you paid into a cash ISA after 5 April 2015, to open a Help to Buy ISA this tax year (ie before 6 April 2016), you will have to transfer your active cash ISA to a Help to Buy ISA, and there are conditions.
    • You can read the FAQs section on the Help to Buy website for more information
  • You can take your money out to buy a property when you need it but some providers may not allow partial withdrawals and you’d need to take all your savings out at the one time
  • These new ISAs will be available for 4 years from 1 December 2015; once you open an account there’s no restriction on how you long you can save.

About the Help to Buy ISA bonus:

  • The minimum bonus available is £400 per person on savings of £1,600
  • Save the maximum of £12,000 and the government bonus will boost your total savings to £15,000 – that’s a 25% boost for your savings and a £50 bonus for every £200 you save. That’s on top of the tax-free interest you earn in an ISA
  • A bonus is only paid when you use your savings to buy your first home at up to £450,000 in London and £250,000 outside London, as long as you’re over 16.

This is a good boost for your finances – as we all know, every penny counts when it comes to buying your first home. But it’s worth highlighting that it will take more than 4 years to reach the maximum savings level.

Couples get double savings

Couples buying together can each take out a Help To Buy ISA, and could get a total of £6,000 between them in bonuses, boosting savings of £24,000 to £30,000, for example. That’s a useful amount of money for a deposit.

You can use the Help to Buy ISA alongside other government schemes, including the Help to Buy: Mortgage Guarantee Scheme, Help to Buy: Equity Loan Scheme and shared ownership.

Find out more about how the Help to Buy ISA works and eligibility criteria on the government’s Help to Buy website which will also give more information on the London Help to Buy from early 2016.

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The information in this blog or any response to comments should not be regarded as financial advice. A stocks and shares ISA is an investment. The value can go up and down and may be worth less than you paid in. Laws and tax rules may change in the future. The information here is based on our understanding in December 2015.