Blog

Help to Buy ISAs

28th Oct, 2015

By Robert Little

In the budget earlier this year Chancellor George Osborne announced the introduction of Help to Buy ISAs. These savings products are designed to help first time buyers get on the property ladder by paying a generous bonus direct from the government to a mortgage lender based on the amount you save.

In this post we set out the basics behind these new products and some FAQs.

 
The basics
Help to Buy ISAs are essentially a form of Cash ISA. You can save a fixed amount each month and when you eventually buy your first house the government will calculate how much bonus you are entitled to and will pay this bonus direct to the mortgage lender to help towards your deposit.

 
How much can I save?

In the first month after you open the ISA you can save a lump sum of up to £1,000. You can then save up to £200 per month. So in the first month you can save a maximum of £1,200 but for all other months you can save a maximum of £200.

Importantly you should note this is “up to“: technically there is no minimum amount you have to save, but some providers may impose their own minimum monthly contribution.

 
How does the bonus work?
Essentially you get 25% of the amount you save. This is not added to your ISA though – instead it is paid direct from the government to your mortgage lender when you buy a house.

There are some restrictions on the bonus however:

  • The minimum bonus the government will pay is £400. To get this you will need to save at least £1,600.
  • The maximum bonus the government will pay is £3,000. To get this you will need to save no more than £12,000.
  • The bonus will be paid on the final amount you have saved. So on the upside the bonus will be calculated on both the money you have saved and the interest you have earned. On the downside if you withdraw any money from your ISA you will not earn a bonus on this.

 
As an example, consider the following person who pays the maximum contribution into their Help to Buy ISA, earns 2% interest (payable annually) and then buys a house:

[table “” not found /]

The final value is £3,668. The government pays a 25% bonus to the lender as part of the deposit (25% x £3,668 = £917). So the total deposit available is £4,585.

This person did not have to stop saving after 1 year. They could have continued saving for many years and eventually built up a £12,000 ISA value, which would attract the maximum available bonus of £3,000 and provided a £15,000 deposit.

 
Can I combine my Help to Buy ISA with other savings to provide a deposit?
Yes.

 
Can my Help to Buy ISA be used towards mortgage fees and solicitors fees, or can it only be used towards the deposit?
The government has not decided if this will be allowed, but their current stance appears to be that a Help to Buy ISA can only be used towards a house deposit, not other costs associated with buying a house.

 
When will they launch?
On 1st December 2015.

 
Who will offer them?
They will be offered by banks and building societies

 
What rate of interest will I earn?
None of the providers have released this information yet, but they will probably be broadly in line with normal Cash ISA rates.

Note that interest is only earned on the amount you save, so any government bonus you accrue will not have interest added to it.

 
Will I pay tax on the interest or the bonus?
No, the interest and the bonus will be tax-free and it does not need to be declared on a tax return.

 
I already saved into a Cash ISA in a previous tax year (i.e. before 6th April 2015). Can I still open a Help to Buy ISA? Can I transfer the Cash ISA into a Help to Buy ISA?
Yes, you can still open a Help to Buy ISA.

Yes you can transfer your Cash ISA into a Help to Buy ISA but only up to the maximum first month contribution limit of £1,200. If you have more than this to transfer you will have to ask your current ISA provider if you can do a partial transfer instead. This will allow you to transfer £1,200 from your Cash ISA to your Help to Buy ISA and then leave any extra money in your Cash ISA.

 
I already saved into a Cash ISA this tax year (i.e. after 5th April 2015). Can I also open a Help to Buy ISA? Can I transfer the Cash ISA into the Help to Buy ISA?
You can only open either a Cash ISA or a Help to Buy ISA in one tax year.

You are allowed to transfer a Cash ISA from the current tax year into a Help to Buy ISA. However you must transfer everything you have contributed to the Cash ISA and there is the maximum first month contribution limit of £1,200 for Help to Buy ISAs. So if you have saved £1,200 or less into a Cash ISA in the current tax year you can transfer all of this into a Help to Buy ISA. If you have saved more than £1,200 into a Cash ISA in the current tax year you will have to wait until 6th April 2016 to open a Help to Buy ISA.

 
I already saved into a Stocks and Shares ISA in a previous tax year (i.e. before 6th April 2015). Can I still open a Help to Buy ISA? Can I transfer the Stocks and Shares ISA into a Help to Buy ISA?
Yes, you can still open a Help to Buy ISA.

Yes you can transfer your Stocks and Shares ISA into a Help to Buy ISA but only up to the maximum first month contribution limit of £1,200. If you have more than this to transfer you will have to ask your current ISA provider if you can do a partial transfer instead. This will allow you to transfer £1,200 from your Stocks and Shares ISA to your Help to Buy ISA and then leave any extra money in your Stocks and Shares ISA.

 
I already saved into a Stocks and Shares ISA this tax year (i.e. after 5th April 2015). Can I also open a Help to Buy ISA? Can I transfer the Stocks and Shares ISA into the Help to Buy ISA?
Yes, you can still open a Help to Buy ISA.

Yes you can transfer your Stocks and Shares ISA into a Help to Buy ISA but only up to the maximum first month contribution limit of £1,200. If you have more than this to transfer you will have to ask your current ISA provider if you can do a partial transfer instead. This will allow you to transfer £1,200 from your Stocks and Shares ISA to your Help to Buy ISA and then leave any extra money in your Stocks and Shares ISA.

 
Do I have to be a first time buyer? What does this mean?

Yes this is only available to first time buyers. A first time buyer is anyone who has never owned a property before. So, for example, if you previously owned a property, sold it and moved into rented accommodation you are not a first time buyer.

 
Can me and my partner both open a Help to Buy ISA? What if we are unmarried?

Yes you can both open an ISA and use the collective money to purchase a house together.

 
Is this available for investment properties?

No, only for residential properties.

 
Can I open a Help to Buy ISA for my child?

Yes, as long as your child is 16 or over. You must open it in their name if you want them to buy a house in their own name eventually (i.e. you can’t open the ISA in your name).

Contact us

Call us today on

01642 477 758

Alternatively fill in your details below to book a free initial consultation with one of our advisers.

Enter your details below to book a free consultation.