What is a Help to Buy ISA?
A Help to Buy ISA is simply a special type of savings account that was set up by the UK Government to help future homeowners save up money for their first home.
Buying a house these days is expensive so you need all the help you can get.
If you use the money saved in the account to buy a home, the UK Government will give you 25% FREE money on top of your savings… Did I mention that it was FREE?
How does it work?
You can put a maximum of £1,200 into the account in the first month and then a maximum of £200 for every month after that.
To get the 25% bonus, you must have at least £1,600 saved up – this means you’d get £400 as a bonus.
The maximum you can get from this scheme however is £3,000 as the government will only give you 25% on up to £12,000.
You can still save more, you just won’t get any more bonus from the government, that’s all. Either way, it’s still a great deal. Some people work two whole months to earn the same amount!
Why do I need to open one now?
The Help to Buy ISA will be discontinued on the 30th of November 2019 meaning you will not be able to set one up after this date. Once you have opened one however, you will be able to keep saving into it up until 30th November 2029.
If there is anybody reading this who is over 16 and has not yet already bought their first home, you should absolutely open up one of these accounts ASAP.
You can open one for as little as £1. Literally, that’s all you need and then at least you can keep the option open for another 10 years. If you don’t open one before the deadline, you lose the chance forever.
What If I’m not sure whether I want to buy a house?
That’s absolutely fine! It’s still a great way to save money. There is no rule saying that you have to use the money to buy a home – you just won’t get the 25% bonus.
Even if you don’t think you will be using the money to buy a home, you should still open one up as the interest rate that you’ll get is often much better than a regular cash ISA, which often hovers around 1.5%.
At the current time, you can get up to around 2.5% which is not too bad at all. It’s also all tax free!
One thing to note is that you can put more money into a cash ISA than a Help to Buy ISA.
However, with the current UK inflation at 1.7%, putting your savings into an account earning 1.5% interest actually decreases the value of your savings ever so slightly.
Do I have to purchase a new home?
No, you don’t. That is for the Help to Buy scheme which helps those with 5% deposits get onto the housing ladder. It’s a bit like a loan. The Help to Buy ISA is totally different.
In order to get the 25% bonus, you just have to make sure that the home you’re buying is under £250,000 (or less than £450,000 if it is located in London’s inner or outer boroughs).
How do I open a Help to Buy ISA
So you’re convinced that you should open a Help to Buy ISA? Great! They’re so easy to set up.
Here are a few ways you can set one up this week, or even today, it just depends on whatever is easier for you:
- In Branch
- Over the phone
Some banks (not all) even allow you to set one up via their app.
Some other tips
Do you have a partner who also hasn’t owned a home before? Get them to open one up as well and you could double the amount of money you receive! This is because the account is opened on an individual basis.
If both of you set one up and saved £12,000 each, which let’s face it, for most houses you would need to anyway if you wanted a 10% deposit, then you could be looking at £6,000 of FREE government money… That’s a lot of money, even for the government to give away!
Make sure you shop around for the banks that offer the best interest rate. You should also check from time to time to make sure your chosen provider’s rate hasn’t gone down. If it has, you can simply switch to a provider with a higher rate.
If you want much more detailed information about the Help to Buy ISA, you can check out Money Saving Expert.
Have you set up a Help to Buy ISA yet? If so, which bank did you choose to go with?