UK property prices are continuing to shoot up, especially in London, and complaints that it's impossible for first-time buyers to get onto the property ladder are hard for politicians to ignore. So the government has launched a number of schemes, such as Help to Buy and Shared Ownership, which are supposed to make it easier to get a mortgage for a property. The latest is the Help-to-Buy Isa, which became available in December 2015, and is intended to give first-time buyers some help in saving up enough money for an initial deposit.
The Help-to Buy-Isa is effectively a cash Isa, with some special rules and a potential bonus from the government. The idea is that you make an initial deposit of up to £1,000 and can put in up to £200 more each month. If you accumulate at least £1,600, the government will give you a bonus on the total amount of up to 25%. The maximum top-up is £3,000, so if you accumulate more than £12,000 you won't get any additional bonus.
This bonus is paid at the time of the property transaction and goes to the bank providing the mortgage, so you don't directly get any of it (though you will benefit in terms of having less to pay). The money that you pay in will earn interest at a rate set by the bank or building society, but the bonus won't accrue interest (and you will only get the bonus if you put the money towards an eligible mortgage). You can withdraw some or all of the money in the Isa, but only the balance of your account, not the bonus. If you withdraw money, change your mind and want to pay back in, you will still be limited to £200 a month.
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Unlike ordinary Isas, you can only ever open one Help-to-Buy Isa, though you can still move your Isa between providers. You can't pay into a cash Isa and a Help-to-Buy Isa at separate providers in the same year (but some providers are offering a "split" Isa, where you get both under the same wrapper). If you've already taken out a new cash Isa this year, then you can transfer up to £1,200 into a Help-to-Buy Isa, and put the rest into a stocks and shares Isa.
There are some restrictions on how the proceeds of the Isa can be used, so not everyone interested in buying a property will be able to benefit from it. Firstly, you can never have owned a property anywhere in the world (so you can't use this to buy a second house).
You also have to live in the property and can't rent it out (unless you are in the armed forces). Unlike the other government schemes, it's not restricted to those buying new-build property only, but the value of the property can be no more than £250,000 (£450,000 in London) to the right we look at a few properties you could still get for this price. This is irrespective of whether it is an individual or a couple buying. Accounts can only be taken out in an individual's name, not jointly, but you can combine the bonuses to take out a joint mortgage. So two people with accounts worth £12,000 each could pool them to pay a £30,000 deposit (£24,000 plus £6,000 in bonuses).
The scheme is open to those who are aged 16 or older, making it ideal for a parent who wants to give their teenage child, or one currently studying at university, a helping hand. Help-to-Buy Isas will be closed to new applicants after November 2019, but existing account holders will be able to keep their accounts (and any bonuses) beyond them. Indeed, the latest date for claiming the bonus is 1 December 2030, so someone currently doing their GCSEs could open an account, and still use it to buy a flat in their late 20s. At the moment, Halifax (Halifax.co.uk) offers the best variable rate of 4%, while Aldermore (Aldermore.co.uk) lets you split your contribution between a Help-to-Buy Isa paying 2% and a 30-day notice Isa paying 1.3%)
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