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Help To Buy ISA Guide

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Aug 6, 2022

Help to buy ISAs – What is a help to buy ISA and how do they work?

What is a Help to Purchase ISA?

New Help to Buy ISA accounts were closed on the 30th of November 2019. You can save money into an existing Help to Buy ISA account up to November 2029 and then claim your government bonus for your first home within 12 months.

The government’s Help to Buy ISA scheme helps you save money on the purchase price for a down payment on a mortgage to purchase a home.

You must be a first-time homebuyer to use help to buy ISA.

You can save taxes for the same tax year just like any other ISA product. However, a Help To Buy ISA allows you to earn a government bonus.

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How do Help to Buy ISAs work?

Up to £12,000.00, the government will increase any contributions by 25%. The government will contribute £50 for every £200 saved. If you save the full £12,000., you will earn £3,000.

To qualify for a government bonus, help to buy ISA you must save at least £1,600. This will give you a £400 bonus.

Monthly payments can be up to £200. The 25% government boost is available for both your initial deposit as well as your monthly payments.

Each first-time buyer can apply for Help to Buy ISAs, but not every home. For example, if you are buying a property together, you can get as much as £6,000 towards your deposit.

When your solicitor/conveyor should apply

Once your offer to buy a property has been accepted, instruct your lawyer or conveyancer to apply for the government bonus. Your solicitor or conveyancer will receive the bonus when you exchange your offer to purchase a property.

Do not wait to complete the purchase, as it will be too late.

The government bonus will be added to your money for your first home once they have received it. The bonus can’t be used to pay the initial deposit for the exchange of contracts or fees associated with the purchase, such as your solicitor’s fees.

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What percentage of my bonus will I receive towards my deposit to purchase my home?

Yes, the government bonus can be added to your total deposit. It will not be applied to your home exchange deposit.

Your lender will need evidence to support your mortgage loan. This will include any money you have saved in your Help to Buy ISA. When calculating your mortgage loan amount, your lender will include the amount of your government bonus.

Who qualifies?

  • First-time buyers are required.
  • You must live in the UK. *
  • You must be at least 16 years old.
  • You must make this your primary residence and obtain a mortgage to finance it.
  • It can be used to purchase any home up to £250,000 (or £450,000 in London)
  • A Help to Buy ISA can be used with any mortgage.
  • If you intend to rent the property out, you can’t use the Help to Buy ISA. This must be your only home and where you plan to live. *
  • A Help to Buy ISA cannot be used on property located overseas.

Some ISA providers allow you to save into both a cash ISA or a Help To Buy ISA in the same ISA wrapper”. The standard cash ISA and Help to Buy ISA allowance limits will still apply.

*Some exemptions may be available for Crown Service employees who work overseas.

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What time can you expect to receive the money?

You can claim your government bonus anytime after your savings reach the minimum amount of £1,600.

It will take you at least four years to receive the maximum bonus of £3,000.

You must claim your bonus through your solicitor before you complete the transaction, but only after you have exchanged contracts. This might result in a maximum fee of up to £50 plus VAT.

Your Help to Buy ISA Interest

Each provider will determine the interest rates for Help to Buy ISAs. They will vary.

Unlike a Lifetime ISA, you will not earn interest because you don’t receive the money until your property is purchased.

Your bonus is calculated using the money that you have saved and the interest earned while your account was open.

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Managing your Help to Purchase an ISA

How do I switch between Help to Buy ISA providers

As interest rates fluctuate, you can switch providers whenever you want to get the best deal. If the recipient ISA provider agrees to the transfer.

Transfers will follow the same rules as Cash ISAs.

This must be done through your ISA provider to ensure that you don’t accidentally withdraw money instead of transferring it. Your money could lose its tax-free status, and you may not be eligible for a government bonus.

Can I change to a Lifetime ISA

Yes, the transfer will be counted towards the Lifetime ISA annual limit (currently at £4,000 for 2022-23). While you won’t receive the Help to Buy Bonus, any funds transferred will be eligible for the Lifetime ISA bonus. However, there are annual contribution limits.

What is the duration of Help to Buy ISAs?

It is no longer possible to open a new Help to Save ISA.

You can save money into your Help to Buy ISA up to 30 November 2029 if you have one, and you will be eligible to receive your bonus for 12 months until November 2030.

Are you eligible for a Help to Buy ISA?

Although you can save less each year with a Help to Buy ISA, £2,400 + initial deposit), the 25% government boost is still much more than what you would earn in interest.

You might also consider a Lifetime ISA if you haven’t opened one by the deadline. This ISA offers a 25% bonus to first-time buyers who are eligible.

If my property purchase is unsuccessful, can I re-open my ISA Help to Buy account?

Yes, you can reopen your account if you fail to purchase the property. However, you will need to present a Purchase Failure Notice to your ISA Provider.

Your account must be reopened within 12 months from the date of account closure (which can also be found on your closing statement). After you have restored your account, you will be able to save into your Help To Buy: ISA up to 30 November 2029 and then claim your bonus for 12 months until November 2030.

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