What is the New Help to Buy ISA?


As you hear news over the next few days regarding the interest rates which high street banks will be offering in order to entice first-time buyers into the new Help to Buy ISA scheme announced in March, you might be wondering just what the Help to Buy ISA is and also how it works? Here we give you a brief explanation to answer the question.

What is the Help to Buy ISA?

The Help to Buy ISA was introduced to encourage or help those who wish to buy a home to save the needed money for a mortgage deposit. The Help to Buy ISA works in just the same same way as other ISAs, with any money placed into the accounts being free from income and capital gains tax. The key difference is what happens to the money when it is being withdrawn from the account.

As you can probably tell from the name, the Help to Buy ISA has been designed with the intention of helping you to buy your own home. The name may be slightly confusing though, as you don’t need to be participating in the Help to Buy scheme to be able to get the benefits of a Help to Buy ISA, you just need to be a UK resident and a first-time buyer. The scheme also takes into account whether you have previously owned a property anywhere in the world.

So what are the benefits?

The reason that you might want to take out a Help to Buy ISA is that the government is offering to top up your savings by 25%. The top-up will be applied when you withdraw your savings and use them to put down a deposit on a first-time property. As we said earlier, you don’t need to be buying a house using the government-backed Help to Buy scheme to be able to take advantage of the top-up, but you do need to be a genuine first-time buyer. There are limits and other terms and conditions, of course, and you can read more about those on the government’s own website.

What interest rates will I get?

From the first announcements about interest rates which have been released in the last few days, some banks appear to be offering interest rates of up to 4% in order to entice your business, with others sticking at around the 2% mark. 

How much can you save?

In your first month of saving you can put up to £1,200 into your Help to Buy ISA account and from then on you can add up to £200 per month.

Can I pretend to buy a house?

Sorry, but I think the government have this one covered. It will be up to your solicitor or conveyancer to apply for the Help to Buy savings bonus when you purchase your property. If it is not a genuine house purchase, then the extra money will be withheld. You will however continue to receive interest on your cash until a genuine property purchase does take place, as long as it falls within the time limits of the Help to Buy ISA scheme.   

So there we have it, a simple explanation of the Help to Buy ISA. I hope you found it useful and if you’d like to share your experience or opinions of the scheme then please feel free to leave a comment below.  

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