Egg timer with banner Help to Buy ISA Time is running out

The Help to Buy ISA was created to assist struggling first-time buyers hoist themselves onto the property ladder. Since then, their big brother, the Lifetime ISA has come along and stolen their thunder. Now, their days are numbered. For some, however, they are still the best choice, but you’ve got act quickly…..

Want to know everything about ISAs and the other types available? Check out our Ultimate ISA Guide to Powerful Tax-free Savings.

What is a Help to Buy ISA?

The Help to Buy ISA was introduced in 2013 to encourage people saving for their first home.

Like all ISAs, it a tax-free account which means that whatever interest you make is tax-free.

How do you qualify for a Help to Buy ISA?

As long as you adhere to the criteria above, there are only two main qualifying criteria you need to know about:

  1. Age 16 or over
  2. A first-time buyer

On a positive note, a Help to Buy ISA can be opened at 16, compared to a Lifetime ISA (that can also be used for first time home purchases) at 18.

Also, if you’re buying with someone else and they are also eligible, you can each have an individual Help to Buy ISA. Then, you can combine them to buy a single property.

How does the 25% bonus work?

When setting up, you can put in an initial £1,000, if you wish. Then, you can save up to £200 per month.

The minimum you need to have saved in total to qualify for the Government contribution is £1,600. Based on 25%, this gives you a bonus of £400.

The maximum you can save for the bonus to apply to is £12,000, which would yield a £3,000 bonus.

If you maxed out by putting in the initial £1,000 then £200 per month, it would take you 4.5 years to reach the £12,000 limit. The Government would then give you the £3,000.

As soon as you’ve had an offer accepted on your house, your solicitor will need to apply for the Government bonus. They will then add it to your deposit at the time of Completion.

If you provide proof of your Help to Buy ISA, Mortgage lenders will take it into consideration as part of your application.

Is it only for new builds?

A Help to Buy ISA and the Help to Buy Scheme are two different things, so don’t get confused.

The Schemes (there are a few different flavours) are geared mainly around shared ownership. Check out the Gov.uk Help to Buy web page to learn more about the different schemes.

The ISA, however, can be used on any property as long as it’s in the UK and your first purchase.

Is a Lifetime ISA better than a Help to Buy ISA?

Since Hep to Buy ISAs were introduced in 213, the Lifetime ISA was born in 2017.

They can both be used for first-time home purchases together with a nifty 25% bonus. But there are some key differences to consider:

  • Help to Buy ISA can be opened at age 16, versus 18 for a Lifetime ISA
  • Pays bonus at the time of completion on your property purchase. In contrast, a Lifetime ISA pays the 25% bonus monthly
  • A Lifetime ISA saving limit is £4,000 per year, compared to £2,400 per year for the Help to Buy ISA
  • Lifetime ISAs will penalise you 25% of the total investment if you don’t use the money for a first-time property purchase or you withdraw it before age 60
  • You can hold a Help to Buy ISA and a Lifetime ISA however the bonus can only be used from one (not both) to buy a house.

TL;DR – which one is better?

For most people who are specifically saving for their first home which will be less than £450,000, a Lifetime ISA will give a bigger bonus. But if you change your mind about using it for a house, then it will also have bigger penalties.

If you’re not completely sure you’ll use the funds for a first property purchase, the Help to Buy ISA offers more flexibility.

To learn more more about Lifetime ISAs, check out our specific article.

If you want a tax-free saving account, are unsure what to use it for and/or can put in more than £200 a month, then consider a Cash ISA or Stocks and Shares ISA.

Transfer a Help to Buy ISA to a Lifetime ISA

You can transfer all or part of your Help to Buy ISA to a Lifetime ISA as long as you don’t exceed the £4,000 LISA limit in a single tax year.

Moving money from your Help to Buy ISA to a Lifetime ISA does not count towards your £20,000 annual ISA limit as the money is already held within your ISA wrapper.

Help to Buy ISA Interest Rates

The interest rates offered on Help to Buys aren’t exactly exciting. The best out there at the moment are Barclays at 2.58% and Virgin Money at 2.5%.

Some providers will allow you to combine your Help to Buy ISA and Cash ISA into one product (commonly called ‘split’ ISAs).

Top picks include Nationwide and NatWest, both coming in at 2.5%.

Help to Buy ISA Allowance 2019/20

Savings can be up to £200 per month.

You can also put in £1,000 in your first month. So, including the £200, that totals £1,200 to kick things off, even before your 25% bonus.

The Help to Buy ISA is ending soon.

That’s right, doors are closing to new savers as of November 30th 2019.

If you already have one, you can keep saving until the closing date on December 1st 2030, when you need to have claimed your bonus by.

The Help to Buy ISA didn’t exactly see a long inning. Around for less than seven years, it’s days are already numbered. So whilst a Lifetime ISA could well be a better option for most first-time buyers, if it does fit your specific needs, then you need to act quickly.

EatSleepMoney.co.uk does not offer financial advice and is intended for reference/information only. Remember, you should always carry out your own research and/or take specific professional advice before choosing any financial products or services or undertaking any business or financial venture. Investments may go up as well as down and you may get back less than you put in.

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Help to Buy ISA – act now before they’re gone
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