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How a Help to Buy ISA works

Saving for a deposit on a house? Not easy is it. We bet you’re being told about a shedload of different ways you can save money in the process too. We’ll put our crystal ball down, for now... One of the ways in which you save money when it comes your house deposit is through a help to buy ISA. Carry on reading to find out what they are and if they could be a viable option for you.

What is a help to buy ISA?

Saving up to buy your first home is never easy but a help to buy ISA can be a great option for taking some of the weight off of your shoulders. Help to buy ISAs are basically a scheme which was introduced by the government to make saving for a deposit easier for first-time homebuyers.

How? For those who don’t know, an ISA is a tax-free savings account. This means that any money you have stored in an ISA will escape any income tax or other tariffs that you may have to pay. 

So, what makes a help to buy ISA so special?

The reasons help to buy ISAs are so special is because the government will compliment any saving that you place into a help to buy ISA by 25% until you hit the contribution limit of £12,000. Sounds great, doesn’t it?

This means that for every £200 that you save into the help to buy ISA then you will receive £50 from the government. The most you will get the bonus on is £12,000. Ultimately, this means that the government can contribute a maximum of £3,000 towards your help to buy ISA.

With help to buy ISAs you can save up to £1,200 in your first month and from then onwards you can only save up to £200 a month. This means that you can still put in less per month but the government bonus you will receive will be less. Also, if you miss one month’s contribution then you can make it up in the next month, though bear in mind that you can still only put £200 in per month maximum!

Another thing that makes help to buy ISAs seem even better is that they are paid per person and not per property. This means that if you and a friend or partner are applying for a mortgage in a joint capacity and both of you open help to buy ISAs then you can earn a fee of up to £6,000 from the government.

There are a few other facts and figures that you’ll need to get your head around. Firstly, the minimum amount that you need to attain a government bonus is £1,600 meaning that you will receive a fee of £400 from the government. Though it’s also worth noting that you start your ISA off with an initial deposit of £1,000 which will also qualify for the government’s 25% imbursement.

What do I need to qualify?

To be eligible for a help to buy ISA, you need to hit the necessary criteria

  • You must be aged at least 16 or over.
  • The money that you are storing in your help to buy ISA is being used to buy a home which is priced under £250,000 or under £450,000 if you are buying in London.
  • You must be a first-time buyer.
  • You can use the money stored in your help to buy ISA on any different type of mortgage that you have decided to go for.

Pretty straightforward? Just remember that while this shows simple criteria for how you can be eligible for a help to buy ISA there is a small list of factors which you cannot use it for. For example, you cannot open a help to buy ISA if you are only wanting to rent a property. Also, you cannot open more than one, use it to buy overseas property or open a normal cash ISA in the same year. 

Opening a help to buy ISA:

Like with mortgages, you can apply for a help to buy ISA though a building society or a bank. The good thing is that you can also claim some interest, but rates will vary depending on what lender you go for.

While everything seems fine at the moment remember that you won’t be earning interest on your government bonus because you won’t be receiving the money until your purchase the property. This is so that you don’t use the money for anything else. Once you receive your bonus from the government, the interest you get will be calculated using money that you’ve saved and the interest that will have accumulated since your account was opened.

Is opening a help to buy ISA the right idea for me?

Definitely! Look, we know that the amount you can save each year with a help to buy ISA is significantly less in comparison with a standard cash ISA. However, the 25% enhancement which the government offers far exceeds the amount you’d earn in interest from a normal cash ISA.

While you won’t get the full benefit of the government bonus until you buy a property, you can take the money out of your help to buy ISA whenever you want! What makes this deal even sweeter is that the money in there will still be tax-free and you’ll get all of the interest that you are due. This can go up to rates of around 2.5%.

Got your deposit ready from your help to buy ISA? Then start using MO to find the right mortgage for your dream home!


Laura Waller

Laura Waller has been working in the mortgages industry since 2013, joining an independent brokerage in Essex. Laura has CeMAP 2 & 3 – Certificates in Mortgages Advice and Practice. Since then Laura oversees marketing for Mortgages Online, using her experience and expertise to write articles and blogs about mortgages and related topics.

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