Help To Buy ISA.
What is the Help to Buy ISA and how does it differ from the normal ISA?
Criteria and Features
The Help to Buy ISA is set up for those over the age of 16 and are first-time buyers; accounts are only open as individuals so a couple can open two.
Works like a standard ISA where the government will add 25% tax-free for any savings you make.
Check the market as like conventional savings accounts you will receive interest, but only on your contribution as the government's bonus payment will only be payable on completion not at the exchange (very important difference, see below [1])
Maximum bonus payable is £3000 so you will need to have saved £12000 to get this.
You can open an account with £1000 and pay in as little as you want per month but a maximum deposit of £200, so in your first 12 months you can pay in £3400 then £2400 each year after and as you must be 16 to start you will have to pay in the max for 5 years to get to £13,000 but you must have saved at least £1,600 to get the government bonus.
Help to buy ISA’s will close on the 30 November 2019
Your Help to buy ISA must be used to purchase a house which you must be living in, whose value must not exceed £250,000 (£400,000 in London)
That’s all great but, so many restrictions why don’t I just take out a Lifetime ISA without the restrictions.
What is the Lifetime ISA, and how is the help to buy one different?
The Lifetime ISA allows you to earn a 25% bonus for savings spent in the same way as the Help to buy one but it can be used on either a deposit for a home or towards a pension income in retirement.
With the Lifetime ISA you can save more you can save up to £4,000 per year and the maximum bonus you can earn is £32,000.
Lifetime ISA receives its payment from the Government Annually on which you will receive interest, which makes a massive difference over time.
You can pay in lump sums you are not restricted by the £200 per month limit.
On the plus side for Help to buy, the lifetime ISA is only open to those aged 18-39.
So do I choose Lifetime or Help to buy ISA?
Over the age of 18 and under 39 it’s a no-brainer, the Lifetime ISA is a clear winner over the Help to Buy ISA.
One word of advice if you take out an ISA and you can set up a regular monthly payment your mortgage company will love it when it comes to your affordability check.
[1] it’s important that you understand that help to buy ISA’s can only be used for completion not the deposit at exchange, so discuss this with your solicitors it’s unlikely that the seller will back out because of it but they will possibly ask for 10% of the property value at exchange, so you will either need to negotiate that down or find a different way of funding it.
With the Lifetime ISA, you can use it for the deposit as the bonus is payable at the exchange of contracts.