What is the Help to Buy ISA and how does it work?

What is the Help to Buy ISA and how does it work?

This is a bit of a no-brainer for first time buyers saving for a house. You can save £1,200 in the first month and £200 a month after that. And when you buy the Government will top up the total with a 25% bonus as long as you have saved at least £1,600. The most you’ll get the bonus in is a savings pot of £12,000 i.e. a £3,000 bung from the Government.

A Help to Buy ISA is basically a variation on a theme that already exists – the ISA – it’s a tax efficient savings account. The H2B ISA is available from most banks and building societies and most of them can be opened online (hurrah!)

Here’s why we like it:

1) You get free money up to a pretty generous amount
2) You can carry on doing it for quite a while, although it’s sensible to start saving as much as you can asap (once you’ve built up your emergency savings pot which should be about 3 months’ salary at least).
3) If you’re saving up for your first home with a partner (smooch smooch) you can BOTH open an ISA and effectively double the government money you get towards a first home. (If they’ve already got on the housing ladder, however, they are barred from opening one so you’re own your own with the H2B game.)
4) The H2B ISA can be used to get you a house worth under £450,000 in London and £250,000 outside.
5) You don’t need to get a mortgage in association with the bank/building soc that provided your H2B ISA so you have flexibility still.
6) You can do the H2B shuffle and move your money into a better-paying H2B account the minute your rate drops. And we recommend you do, because that interest needs to be at the max to help you bump up your savings even more.
7) You can find some groups such as Nationwide which will let you do a ‘split’ ISA – and have some in a H2B and some in a vanilla cash ISA – all in the same account. This is a bit of a fiddle as you are not supposed to open a cash ISA and a H2B in the same tax year. The only negative in doing this (the split thingy) is you may get lower rates on both your Help to Buy ISA and cash ISA by linking them together.

Convinced? Simply apply for one from one of the many banks and building societies that have jumped on this bandwagon. Halifax, Santander and Nationwide are three of the bigger high-street brands offering decent rates (between 2% and 2.5%) and which let you operate online. You can get a little more with some providers if you live in specific regions and are prepared to deal in branch. Yawn.

Just one more thing; you can’t take the government’s cash early and take off to Koh Samui with it. (Otherwise, wouldn’t everyone be doing it??!!) Once you come to buy your home, your solicitor will actually have to apply for the cash once you’ve notified your bank/building society that the job’s done and you intend to close your account. You can withdraw your cash from the account early but you lose the money the government would have given you – thus defeating the purpose of the exercise! So make sure you have an emergency savings pot you can draw on instead…