The Government Help to Buy ISA
Saving for a house deposit can deem like an impossible task at times. With house prices on the rise and interest rates on the ground, dreams of getting a foot on even the bottom rung of the property ladder are getting further and further away for first time buyers.
Recent trends in the market reveal that the older generation are monopolising the buyers’ market – snapping up properties with pension funds to let - getting a much higher return on investment than they would if they had put the money into a savings account.
The impending election has seen an influx of schemes and incentives from a number of political parties in an attempt to address some of the major issues with the housing market in the UK for first time buyers including low interest rates and ever increasing house prices.
One of the latest incentives categorized under the ‘Help to Buy’ brand includes the Help-to-Buy ISA whereby the Government plans to give £3,000 to first-time buyers to help them get a foot on the property ladder. Available through banks and building societies, the bonus will represent 25% of the amount saved and represent an equivalent of saving a year in time.
How Does It Work?
From autumn 2015, people over the age of 16 have been able open aHelp-To-Buy ISA for the sole purpose of saving for a house deposit. To incentivise the scheme, the government will pay £50 for every £200 that the saver pays into their account. This means if you manage to save £12,000 in your ISA, the government will handover an extra £3,000 towards your deposit.
The Perks of the Scheme:• Unlike most saving accounts, the money in your account can be accessed at any time. • Anyone over the age of 16 who has never owned a property before can apply for a Help-to-Buy ISA, meaning couples will be able to run individual accounts and save up to £6,000 for their deposit. • The scheme aims to reward positive saving behaviour – incentivising you to keep saving and not give up. The £200 requirement per month to get the £50 also means that you are more likely to push yourself to put more away – getting you closer to the dream home quicker. • It can be used alongside other government incentives such as the Help-to-Buy 5% deposit scheme. • You can open your account with a maximum of £1000, plus an extra £200 for the month, meaning in your first month alone you can save £1200 which will then be topped up with £300 by government giving you a solid start to saving. • The minimum you will need to save is £1,600 (giving you a £400 top up) making it a good option if you already have most of your deposit in a different account and are just saving for the remaining amount. • After you have hit the £12,000 max you will be able to keep the account open and will still be able to earn interest on it all – you just won’t qualify for anymore payments from the government.
Potential Problems with the Scheme:• Individuals can open the account with £1,000 and pay up to £200 a month - if you want to pay more you will not qualify for the 25% pay out. • The money from the government is only added when the deposit for the home is required – meaning it could be difficult for you to keep track of how much you have in your account. • The incentive can only be used on properties up to the value of £250,000 – if you’re looking to pay more for your first property you will not qualify for the help. • The maximum amount of money which will get the 25% increase is capped at £12,000 so if the deposit you require is more than £15,000 you will have to save and source the rest without help. • The scheme is only available for first-time buyers meaning if you have owned any type of property before you will not qualify. • To get the full £3,000 you will have to pay the £1,000 opening deposit and £200 every month for 55 months – quite a long wait and a commitment to add the £200 every month. If you are doing it as a couple then that time could be halved, however it does mean as a couple you are having to put away a minimum of £400 per month. • If you already have an ISA open, you can transfer money from that ISA into the government backed one – however, it can only be a max £1,200 to open the account and then dripping the rest in £200 per month. That’s a lot of paperwork and means that for the months you are transferring you will not be saving new money. • You cannot open a Cash ISA and a Help to Buy ISA in the same tax year – you will have to choose one or the other. • It is not available for first time buyers who want to buy-to-let. To qualify for the scheme, you must live at the property you used the deposit for.