There is no doubt that First Time Buyers need help to get their deposit together.
In Edinburgh in 2016 we found that many first time buyers found stiff competition between themselves and investors when offering for properties.
Quite often bids at Closing Dates were reaching 10% over the valuation. And in the first three months of 2017 the situation is the same, if not more competitive with some first time buyer properties achieving as much as 20% over the valuation. So Help to Buy ISAs benefitted quite a few of our clients in 2016 and 2017 but not everyone is taking advantage of them. If you can, then we certainly recommend that you at least consider opening a Help to Buy: ISA.
How does it work?
Essentially, if you are buying your first home, by saving money into your Help to Buy: ISA means that the Government will boost your savings by 25%. So for every £200 you save, you will be given a bonus of £50. However, the maximum bonus is £3,000. This means that the maximum you should put into your Help to Buy: ISA is £12,000.
However if you are a couple and intend to purchase your first property together then both of you can have your own Help to Buy: ISA and this means that the maximum bonus you can get from the Government is doubled to £6,000.
Who offers Help to Buy: ISAs?
Help to Buy: ISA accounts are available at many banks and building societies. So ask your bank or building society if they offer one or go online and find out who does. You can also visit the Government’s Help to Buy ISA website for details and their website address is given at the end of this article.
Limits on what you can invest/save each month:
You can make an initial deposit of a lump sum up to £1,200. Thereafter you can make deposits of up to £200 per month. So in order to get the maximum Bonus of £3,000 you would in effect need to save for about 5 years which of course is not really feasible if you are currently looking to buy your first home. Very few people will therefore get the maximum bonus. However, that does not mean that it is not worthwhile.
Minimum amount of savings in order to get the Bonus
The minimum government bonus is £400. This therefore means that you need to have saved at least £1,600 into your Help to Buy: ISA account before you can claim the bonus.
Are you eligible?
Not every first time buyer is eligible and so to be eligible you must:
- Be over 16 years old
- Have a valid National Insurance Number
- Be a UK resident
- Be a first time buyer and not own a property (or share ownership of a property) anywhere else in the world
- Not have another active cash ISA in the same tax year although if you do you can probably still open a Help to Buy: ISA but need to go through various other steps
Is the Property eligible?
To qualify for the government bonus, the property you wish to buy must:
- Be in the UK
- Have a purchase price of up to £250,000 (see below for more information)
- Be your only home you will own
- Be where you intend to live
- Be purchased with a mortgage
Limits on the Purchase Price
Because the Scheme is aimed at helping First Time Buyers, there is a limit on the purchase price you can pay for the property you wish to purchase. That limit is £250,000 (although there is a higher limit of £450,000 if the property is in London).
Shared Equity Properties
If you are thinking of buying a shared equity property then the purchase price limit then the full purchase price is a multiple of the equity share being purchased.
For example, if you are buying a 25% share of a property for £50,000 then the full sale price is £200,000
How long will the Help to Buy ISAs be available for?
The government has stated that you will be able to open a Help to Buy ISA until 30 November 2019.
If you have opened an account before then you will still be able to continue to save into the account and claim the Bonus (provided the Bonus is claimed by 1 December 2030) but no new accounts can be opened after 30 November 2019.
Tip for parents
So, for parents of children likely to be looking to help their children buy their first home, it might not be a bad idea to arrange to open an account now. An account can be opened with even a token amount. As parents you can choose whether to pay additional amounts monthly or not at all and perhaps then leave it to the child to pay in monthly amounts as and when they can afford it.
You can find out more information about the Help to Buy: ISA Scheme at the following website: