HELP TO BUY ISAS
Many first time buyers struggling to save enough to put down a deposit for their first home will welcome the government’s new scheme to encourage home ownership. Called the Help to Buy Individual Savings Account (ISA), it launches on 1st December 2015. It is designed to help future first-time buyers aged 16 or older, faced with soaring property prices, save towards their first step on the property ladder.
How it works
Savers have the opportunity to contribute a maximum of £200 each month, with the government contributing up to £50 on top. Savers can put in an initial deposit of £1,000 when the account is first opened, and as an extra incentive to save, the government will pay a bonus of up to £250 on the full £1,000, plus another £50 for each £200 of monthly savings made after that. The minimum savers need to accumulate to qualify for the bonus is £1,600, this will attract a bonus of £400. In order to claim the government’s maximum bonus of £3,000, they need to save £12,000.
It is worth noting that couples buying a house together can each take out a Help to Buy ISA and together get a total of £6,000 in bonuses. This means that their maximum savings of £24,000 are boosted to £30,000.
The Help to Buy ISA will be offered by banks and building societies and, as with cash ISAs, each will set their own rate of interest. So not only will savers earn interest on their savings, they will also get their bonus paid at the end.
Putting down the deposit
Savers do not actually receive the bonus until they put down a deposit on their first home and restrictions will apply. The maximum price of a property eligible under the scheme is £450,000 in inner and outer London boroughs, and £250,000 outside London. When it comes to taking out the mortgage, there is no requirement to take it out with the bank or building society where the Help to Buy ISA is held.
The most you can contribute in each tax year to a Help to Buy ISA is £2,400, which falls short of the limit on ordinary cash ISAs which for the tax year 2015-16 is £15,240. Another limitation is that you can only have one cash ISA in the current tax year, meaning that you can’t have both a standard cash ISA and a Help to Buy ISA at the same time. However, this new account represents a real reward for those working hard to save up for their first home.
Not only will savers earn interest on their savings, they will also get their bonus paid at the end.
The value of the investment can go down as well as up and you may not get back as much as you put in.