Help to Buy Isas explained

What is a Help to Buy Isa?

The Help to Buy Isa scheme has now closed to new applicants. Savers with existing Help to Buy Isas can continue to use them (and benefit from the 25% bonus) until December 2030.

Help to Buy Isas are savings accounts allowing first-time buyers to save for a mortgage deposit and claim a government bonus when they buy their first home.

For every £200 saved, the government pays a £50 bonus towards the purchase price of a property. This means the government will effectively give you a 25% top-up on savings of up to £12,000, so you could earn a maximum tax-free bonus of £3,000.

How much can I pay into a Help to Buy Isa?

If you already have a Help to Buy Isa, you can pay up to £200 per calendar month into your account.

You can withdraw money if you need to, but your deposit allowance won't change. This means that if you contribute £200 at the start of the month and then withdraw it (or some of it), you won't be able to pay anything else in until the next calendar month.

As well as the government contribution, cash in a Help to Buy Isa will earn interest from the bank in the same way as it would in any other Isa.

This interest will count towards the balance the government bonus is based on.

Who can use a Help to Buy Isa?

Any UK resident can have a Help to Buy Isa - but to qualify for the bonus, you need to:

• Use the money to buy your first home; and
• Buy a home costing a maximum of £250,000, or £450,000 in London.

The Help to Buy Isa isn't limited to those buying new-build homes. The government bonus will only be paid when you buy a property, though, so you won't get the 25% top-up if you use the money for something else.

If you're saving up to buy a house with another person, you can both have separate Help to Buy Isas, meaning you could potentially get £6,000 extra from the government.

If the person you're buying with is not a first-time buyer, you will still qualify for the government bonus on your part of the deposit, but they won't be able to do so for their share.

The property you're buying must be mortgaged in order to qualify for the government bonus.

Help to Buy Isa account holders can take out any kind of residential mortgage (but not a buy-to-let mortgage) and you don't have to get your mortgage from the bank you hold your Isa with.

How does the bonus get paid?

If you've saved up for your mortgage deposit using a Help to Buy Isa and are ready to buy a property, whatever you do, don't just withdraw the money - there's a process you need to follow in order to claim your bonus:

Step 1: Tell the bank that you're ready to buy and would like to close the account. You'll then receive a closing letter from the Isa manager.

Step 2: Give the closing letter to your property solicitor or conveyancer. They will use the letter to apply for your government bonus.

Step 3: The bonus will be transferred to your solicitor.

Step 4: Your solicitor will complete the purchase of your home using the full bonus amount in addition to your deposit.

The bonus will be calculated based on the total amount of money in your Help to Buy Isa at the time of closing, including any interest you've earned from the bank.

Not all of your deposit needs to be held in your Help to Buy Isa, just the amount that you want to be taken into account when the bonus is calculated.

You can only use your Help to Buy Isa bonus for the purchase of the property itself, not other costs such as conveyancing fees. The bonus is paid on completion so can't be put towards the exchange deposit (see below).

Paying an exchange deposit

You'll probably have to pay an exchange deposit of 10% when you exchange contracts with the seller (the point at which you legally commit to buying the property).

You won't be able to put the government bonus towards this, as the bonus is only paid on completion.

If you're taking out a 95% or 90% mortgage and need the bonus as part of your deposit, tell your conveyancer as early on in the process as possible. They should usually be able to negotiate a lower exchange deposit for you.

Is there anything else I should know?

For anyone saving up for a mortgage deposit, a Help to Buy Isa is a very attractive option.

However, there are some restrictions:

The minimum bonus payment is £400, so you will need to save at least £1,600 in a Help to Buy Isa to qualify for a government top-up.

Help to Buy Isas can only be held by people aged 16 or over, so if you want to save money for your child, a Help to Buy Isa will only work if your child is 16 or above and they have opened it in their own name (you can then pay into the account).

Help to Buy Isas are no longer open to new applicants, so new savers may want to open a lifetime Isa instead.

Frequently asked questions

• When do I need to claim my bonus by? 1 December 2030
• Can the bonus be used on a shared ownership property? Yes
• Can the bonus be used for self-build? No
• Can the bonus be used for stamp duty? No
• If I own a commercial property (but have never owned a residential one) can I get a Help to Buy Isa bonus? Yes
• Can I make multiple deposits in the same month? Usually, as long as they're cumulatively below £200, but this depends on your provider's terms.

Help to Buy Isa vs lifetime Isa

The lifetime Isa, launched in April 2017, is designed to help people under 40 buy their first home or save for retirement. Like the Help to Buy Isa, it offers a government bonus on savings.

It is possible to have a Help to Buy Isa and lifetime Isa at the same time - but you can only get the government bonus on one of them when buying a home.

The table outlines the main differences between the different accounts so you can decide which is the right choice for you.