What’s A Help To Buy ISA?
The Help To Buy (HTB) ISA is a government initiative to provide support to first-time buyers. It was introduced in December 2015 and has been hugely successful since its launch, helping over one million people so far!
The Scheme works by giving those savings for their deposit £200 every month until they have saved the required amount of money (£12,000).
By incentivizing savings with an initial 25% generous government bonus and monthly additional contributions from savers themselves, it helps aspiring homeowners save more quickly towards a property purchase.
What does this mean for you?
This means that if you are lucky enough to afford to buy your own home within three years, this might be the answer to your prayers.
As a result of the government’s introduction of this Scheme, over one million people have already saved more than £200 per month for their deposit with the help from HTB ISA accounts, and many more will reap the rewards in time to come.
Therefore, the Help To Buy (HTB) ISA is an extremely effective way for first-time buyers who may not be able to afford property on their own to achieve their dream without having to wait out savings until they are old enough or saving large amounts each month themselves.
It also ensures that if you manage to pay off your mortgage or early, any interest paid by the bank will go back into your account rather than towards someone else’s financial stability.
How Do Help To Buy ISAs Work?
HTB ISAs are essentially a savings account that is only accessible once you have reached 18 years old.
Until this point, the money in these accounts can be put towards either buying your first home or educating yourself with what it takes to become an independent adult.
Let me tell you something,
The maximum amount of cash allowed into the HTB ISA is £20000, which could then stay untouched for up to four months.
The more interest rates rise on mortgages, the higher deposits need to be as well.
This means that people who want to buy their own homes but cannot afford high down payments or initial deposit will find themselves stuck renting forever – so anything that helps the first-time buyer get onto the property ladder should rightly be welcomed.
How To Apply For Help To Buy ISA
To apply for a Help To Buy (HTB) Isa from one of the participating banks or building societies, there are three simple steps with which new applicants must comply before being able to gain access to their HTB Isa.
First, you will need to open a current personal account with the bank or building a society of your choice. You can then either apply for an ISA in person from them, over the phone, or via their website.
You will be required by law to provide proof of ID and documentary evidence as part of this process, so make sure before applying that you have these items on hand.
Second, once all identification documents are provided, and the application is accepted, the bank or building society will contact HMRC1 to verify your eligibility and provide them with a unique reference number.
You should then receive confirmation of your HTB Isa acceptance via email.
Third, you can now transfer up to £20000 into any new Help To Buy ISA account from another current account in which you are a sole or joint holder.
You must also register for online banking facilities if this option is available at the provider where you choose to open an account by providing either:
- A mobile phone registered in your name; OR
- Your national insurance number2 as a verification that it’s really YOU who has logged on and not someone else.
Once all these steps have been completed, the money will be transferred into your HTB Isa account in the next working day.
The first time you use it, every penny of interest and bonus (if any) earned from investments inside the Help To Buy ISA will be 100% tax-free.
- People who are 18 or over and do not yet own a home
- Those saving towards buying their first property or updating an existing one, as well as those hoping to trade up in the future.
And the good news?
The HTB ISA can be put into any bank that offers it (you may need your employer’s help to find out which ones suit you best), but there is £20000 maximum per individual – meaning if both parents want to save for their child, they would each have access to a max of £25000 (£5000 from mum and dad).
Interest In Your Help To Buy ISA
The interest rates differ from one bank to another but typically are between 0.00% and 0.75%.
As the Help To Buy ISA is a long-term investment (typically, you need to have been saving in it for at least three years), any interest earned will be much lower than what you would get with a standard savings account.
Managing your Help to Buy ISA
The HTB ISA is a government-backed account, so the money in it cannot be withdrawn until you have built up enough to buy your home (or made an unsuccessful application for a house).
However, if you sell or rent out your property within three years of the purchase date, any remaining balance must be repaid back into the Help To Buy ISA and will not count towards the £20000 cap.
The maximum amount per year you can save into the Help To Buy ISA is £20000 (£25000 if both parents want to keep), which differs depending on what bank you choose and will become considerably less than with standard savings accounts.
It also makes managing easier because online banking is possible. All transactions take place online, so there is no need for a physical bank branch.
The Help To Buy ISA is not just about saving money, it also offers support and advice through the government-backed website and banks who have signed up to provide these accounts.
Banks, in turn, can provide more competitive rates of interest due to the certainty of future returns when you settle on your house purchase with them.
Can I use a help to buy ISA with someone who isn't a first time buyer?
Yes, you can. However, the person who will be first-time buyer must use all of their savings in the account to buy a home. You cannot combine £20000 from your help to buy ISA and another person’s money for example.
What are the negatives of help to buy ISA?
The negative of the HTB ISA is that it has a limit. The maximum amount you can put in your account per year is £20000 which could be an issue if, like most people, your home buying plans take more than 12 months
Another downside to this offer is its restrictions on withdrawals. You cannot withdraw from your Help to Buy ISA until you use it to buy a property.
What happens if you pay too much to help to buy ISA?
If you pay too much, the government will refund you.
How much can you put in a help to buy ISA per month?
You can put in up to £20000 per year. This is the maximum and you cannot invest any more than this each year.
To sum it up:
HTB helps people save towards buying their first home; this means that they can afford a higher deposit than otherwise might be possible without help. It also offers peace of mind, with the account being backed by government legislation under the Help to Buy Scheme.
The significance of the Help to Buy ISA is that it allows people who are struggling financially to save money for a mortgage deposit on their first home and not worry about other costs like council tax or insurance.
The HTB can be withdrawn at any time, but you will lose your bonus, so it’s worth waiting until settlement before using this amount as part of your offer. However, some banks may limit how often the money in an HTB can be accessed, making saving over a long period challenging if circumstances change.
HTBs provide options such as paying off credit card debt which gives homeowners more breathing space.