If you’re a first-time buyer saving for a mortgage deposit the Government’s Help to Buy ISA is no-brainer. With the right ISA you could earn up to 4% interest tax-free, and then enjoy a 25% cash bonus from the state on top of what you save. Even if you have no intention of buying a property you should still consider a Help to Buy ISA.
Our guide covers everything you need to know about Help to Buy ISAs. Including who can get them, how to you can use them, and what to do if you change your mind. We’ll also compare the best Help to Buy ISA deals.
Here’s how the Government expects the ISA to work:
1. What you need to know – in a nutshell
In the first month you can deposit up to £1,200. After that it’s a maximum of £200 per month
You can pay in less, and the scheme will still work, so you’re not fixed to paying in £200 if you can’t afford it. Likewise, you can miss a month without jeopardising your bonus, but you’ll still only be able to pay in up £200 the next month.
2. The Government adds 25% tax free when you use the money for a deposit
When you are ready to use the money for a deposit, the account is closed, and conveyancer or solicitor needs to apply for the bonus on your behalf. Note they can charge up to £60 for this service.
You must have saved at least £1,600 to be eligible, at which point you’ll receive a bonus of £400. The maximum you can get is £3,000 on a balance of £12,000. Of course you can save more than that, but the extra won’t count towards the bonus. Bare in mind that the money can only be awarded on completion, so can’t be used an initial exchange deposit.
The scheme is set to last until 2030, to paying in small amounts can still be worth while. Though there is a risk that future governments might cancel the bonus, many Help to Buy ISAs offer better interest rates than their cash equivalents, so you’ll still enjoy some benefit.
3. The scheme is open to all fist time buyers (only) -anyone over the age of 16 can open one
Although mortgage applicants must be over 18 year old, Help to buy ISAs can be opened by anyone over the age of 16.
Accounts must be opened between 2015 and 2019 (even though the bonus is available until 2030).
4. Help to buy ISAs for for individuals BUT you can buy together with someone else
As the name suggest “individual savings accounts” are only for individuals, so if you’re a couple you can open one each and both get the bonus.
If the person you’re buying with has previously been a homeowner you’ll still be able to open the ISA and get the bonus but they won’t. If neither of you have owned a property before, you can both open an ISA and enjoy up to £6,000 bonus.
5. The bonus is available on all properties up to £250,000 (£450,000) in London
You’re no restricted on the type of property, unlike previous schemes where only new builds were eligible. Nor are you restricted by mortgage type. You can buy a Help to Buy mortgage but you don’t have to.
You can open your mortgage with any bank or building society you like, you’re not restricted to the same one that you opened the ISA with.
6. You are only allowed on Help to buy ISA
Currently you’re allowed to open a new Cash ISA every tax year, so could end up with multiple ISAs though you’re allowed remains the same.
The rules are different with help to buy ISAs. You are only allowed to open one, but you can move it to another provider, so it’s worth monitoring your interest rate, and switching when a better product comes onto the market.
7. You can’t contribute to a Help to Buy ISA and a cash ISA in the same year – or can you?
Whilst you’re not supposed to contribute to a cash ISA and Help to Buy ISA in the same tax year, but you can still hold your old old cash ISAs, and there is no restriction if you have a stocks and shares ISA.
A workaround: Some providers are offering split ISAs. Basically they’ve wrapped up a cash ISA and Help to Buy ISA together effectively splitting the money you pay in between both.
The downside of this is that you will almost certainly be offered a lower rate of interest, and your £15,240 tax free ISA limit remains.
8. You can change you mind and access your cash
Obviously the Help to Buy ISA is aimed at would-be first time buyers, but should you change your mind you’re not committed to buying a home.
You can take your cash out at any time you choose. Yes you’ll miss out on the bonus, you’ll still enjoy some of the best interest rates around.
Alternatively, the rules allow for partial withdrawals. So you can can withdraw some of your money, and still claim the bonus on the rest.
It’s this that makes the Help to Buy ISA the go to choice for cash savers since the standard interest rates even without the government bonus are far higher than those of standalone cash ISAs.
9. Even if you’re buying soon it still pays to open a Help to Buy ISA
The minimum you need to claim the bonus is £1,600. The rules allow a lump sum of £1,200 to be deposited in the first month, and then £200 per month in subsequent months. But these are calendar months, so in practice you would open a Help to Buy ISA at the end of one month and pay in £1,200, then pay in £200 the next day, followed by £200 on the first day of the next month. So the minimum amount of time it would take to be eligible for the bonus could be as short as 31 days.
The best Help to Buy ISAs
We’ve rounded up a selection of the best Help to Buy ISAs on the market.
4% Interest with Halifax
The top paying Help to buy ISA bar none
With announcement of Help to Buy ISAs Halifax launched an unbeatable 4% AER variable deal.
If you’re solely in the market for a Help to Buy ISA, this is the one to get. Bear in mind that the rate is variable, so be sure to monitor it in case it drops.
Rate: 4% AER variable | Min deposit: £1 | Access: Online/branch/phone | Interest paid: On account anniversary | Allows ISA transfers? Yes | Split ISANo | Linked account needed? No | Linked benefits? None | Withdrawal penalty: None
3% Interest at Virgin Money
The best alternative
The Virgin Money Help to Buy ISA is the next best alternative to Halifax. If you don’t want to split your ISA, or are concerned about reaching your FSCS limit on protected savings with HBOS, then this is the one to go for.
Rate: 3% AER variable | Min deposit: £1 | Access: Online | Interest paid: annually/monthly | Allows ISA transfers? Help to buy | Split ISANo | Linked account needed? No | Linked benefits? None | Withdrawal penalty: None
2% Interest and split finds with Nationwide
The best split ISA
The Nationwide Help to Buy ISA doesn’t quite match the leading rates of Halifax or Virgin Money, it’s not too far off. The building society offers 2% AER on funds held in the Help to Buy ISA, but also allows you to split your money with its Easy Access ISA, although the rate on this is 1.1%, or 1.3% if you have a current Flex Account.
Rate: 2% AER variable | Min deposit: £1 | Access: Online/branch/phone | Interest paid: On account anniversary| Allows ISA transfers? Yes | Split ISA Yes | Linked account needed? No | Linked benefits? ‘Save to Buy’ mortgages | Withdrawal penalty: None
Non-best buy providers
Help to Buy ISAs that didn’t make into our ‘best buy’ list.
Barclays – pays 2.27% AER variable
Bank of Scotland – pays 2% AER variable
Chorley BS – pays 2% AER variable
Clydesdale Bank – pays 2% AER variable
HSBC – pays 2% AER variable
Lloyds Bank – pays 2% AER variable
Santander – pays 2% AER variable (if you’re a 123 or Select customer, 1.5% if not)
Yorkshire Bank – pays 2% AER variable
Split ISA alternatives
If you’re already a Nationwide customer with a Flex current account, then its split ISA is best available at the moment. Non Flex account holders seeking a split ISA might want to consider Aldermore, for the slightly better cash interest rate.
Aldermore – pays 2% on Help to Buy ISA and 1.3% on cash
NatWest – 2% AER variable on Help to Buy, 0.25% on easy access cash ISA
Ulster Bank – 2% AER variable on Help to Buy, 0.5% on easy access cash ISA
Newcastle Building Society – 1.51% AER variable on Help to Buy, 1% on easy access ISA