The 1st of December is usually all about the Advent Calendar, and thinking of getting decorations down from the loft, but this year it is also notable as the date that the Government’s Help to Buy ISA scheme came into effect.
First time buyers can, from today, start opening accounts that will allow them to save up to £200 a month tax-free, and then provide access to a bumper 25% bonus on interest and contributions once they buy a home. What’s more if a couple are buying together, then each person can get (and benefit from) a new ISA.
This means that, in effect, the Government is giving you £50 for every £200 you save, up to a maximum bonus of £3,000!! You can kick-off the account with an initial deposit of £1,200 and then save up to £200 per month. Sounds good so far doesn’t it? To get the most benefit you’ll need to accrue £12,000 which will take over 4 years, meaning that it’s quite a long trip to the end of this particular rainbow!
So who’s going to pay you what for your savings? Halifax today revealed it will pay a variable interest rate of 4 per cent. Virgin Money (3%), Aldermore (2%), NatWest/RBS (2%), Nationwide (2%), HSBC (2%) Santander *(2%), Barclays (2.25%) and Lloyds (2%) Newcastle Building Society (1.5%) also entered the market. The good news is that you won’t have to take the mortgage with the bank you choose for your Help to Buy ISA.
You would need to save elsewhere (obviously) if you were aiming for more than £15,000 as a deposit, and you will need to be aware of the small print . ISA rules will stipulate that if you hold a Help to Buy ISA, then you are not permitted to open a separate Cash ISA elsewhere in the same tax year.
You can keep your Help To Buy ISA open as long as you like but the scheme closes to new savers in November 2019. You can access your money at any time, although some lenders may vary the interest payable. You only get the bonus when you put a deposit on a house, via your solicitor or conveyancer and they can charge you £50 plus VAT to process your bonus payment.
There is a catch, which may snare some Bristol buyers as well as others particularly in the South – you can only use the money raised for a first time buyer residence worth up to £450,000 in London or up to £250,000 in the rest of the country, which may restrict your housing options.
*Santander 2% only for current account customers
**Interest and terms correct at time of blog post
Blog post MC/EH – 1/12/15