Help to Buy ISAs are a generous government-backed tax-free savings vehicle for people who want to get on the property ladder.
What are Help to Buy ISAs?
As UK property prices continue to outstrip earnings, the dream of owning a home has become ever more distant for many younger people. As a result, the UK government has responded, not by building more houses (which might seem logical), but by helping people to save for their first home with the Help to Buy ISA.
In many respects Help to Buy ISAs are similar to other ISA accounts. They enable people to save, tax-free. Where they differ, is that the UK government offers a 25% bonus on the savings deposited, up to £3,000.
How do Help to Buy ISAs work?
Help to Buy ISAs work like other ISA accounts. However, the maximum initial deposit is £1,000, and, after that, the maximum you can deposit every month is £200.
Before you can claim your government bonus, you'll a minimum balance of £1,600. So, assuming you manage to make the £200 deposit every month and start your account with the maximum £1,000, it will take four and a half years to gain the maximum bonus available from the government (£3,000).
Aside from the government bonus, you will also earn standard interest on your Help to Buy ISA. Although these rates vary from provider to provider, they tend to be higher than those available on standard ISA products.
Who can get a Help to Buy ISA?
Given that the Help to Buy ISA is clearly very generous, there are numerous restrictions as to who is eligible. As such, you can only apply for account, and use your government bonus, if meet the following criteria:
You must be 16 years old or over
You must not have owned property previously
You must use your Help to Buy ISA to fund a mortgage deposit
You can only buy property in the UK
The property you buy must cost less than £250,000 (£450,000 in London)
You cannot rent out the property you buy
Also, you cannot open a standard cash ISA in the same year as a Help to Buy ISA.
Switching Help to Buy ISA accounts
If you notice that the interest you are earning on your Help to Buy ISA is lower than that available from alternative providers, you can transfer your funds in the same way you can with traditional ISA products.