The ‘Help to Buy ISA’ | An Explanation

If you’re saving to buy a house and you haven’t looked into the Help to Buy ISA bank account then put everything down right now and read about how the government will give you money – which you don’t have to pay back(!) – for first time buyers.

The Help to Buy ISA is a government scheme to help first time buyers get on the housing ladder. When I lived in London, dreams of buying a house were literally dreams however now I live somewhere more ‘normal’ my partner and I can realistically buy a house sometime in 2018 – very exciting.

I won’t babble on too much about my own experience with house buying – there will be a new section to the blog about that soon. For now, here’s how it works in the most simplest way I can explain it.

An Explanation…

If you’re saving towards your first home, by placing your money in one of these accounts, the government will boost your savings by 25% (to a point). For every £200 you save, the government bonus you with £50.

These are sole-accounts meaning they can only be in one name. But you and your partner can both open one of these accounts so double these figures if you’re buying with someone else.

This scheme’s set to keep paying out until December 2030. So, you could put in just a small amount per month and take years to build up your bonus.

What Are The Figures?

You must put in £1,200 in the first month then up to £200 (per account, per month). This will net you £400 after 2 months. The minimum government bonus is £400 so you’ll need to do this first.

The maximum government bonus you can receive per account is £3,000 (after you’ve deposited £12,000).

Savings below £1,600 – You do not have sufficient savings for a bonus.
Savings between £1,600 and £12,000 – The Government will top up your savings by 25%.
Savings over £12,000 – The Government will top up your savings by £3,000.

What Happens When You’re Ready To Buy?

When you are close to buying your first home, you will need to instruct your solicitor or conveyancer to apply for your government bonus. Once they receive the government bonus, it will be added to the money you are putting towards your first home.

You’ll then receive a closing letter from your ISA provider, which you need to give to the solicitor who is doing your conveyancing (house buying) work for you.

The solicitor then uses the letter to apply online for the government bonus.

Any Hidden Costs?

Because it’s admin work, and takes time, solicitors are allowed to charge up to a maximum of £60 (£50 + VAT).

What Can’t You Use the Money On?

You can’t use it on any costs such as to pay for solicitor’s, estate agent’s fees or any other indirect costs associated.

When you’re buying a home there are two types of deposit (though the same money is generally used for both).

#1. The Home Exchange Deposit
During the process of buying a property, after your offer is accepted, once you’ve checked everything out you normally exchange contracts with the seller. At this point the seller will usually ask you to put down a 10% deposit to secure the property. You’re then committed to buying and no-one else can buy it. You then have time to work through your finances (and any other issues towards completion) which is when you and the mortgage company hand over the remainder of the cash

While you can use the money you’ve saved in a Help to Buy ISA towards this exchange, it’s only at completion that you receive the mortgage money and Help to Buy ISA bonus; so the bonus won’t help towards the home exchange deposit.

Don’t rely on the Help to Buy ISA bonus to get you to 10% – you won’t get the bonus until the next stage so you’ll only be relying on the money you’ve saved first.

#2. The deposit at completion / the mortgage deposit
It is this final deposit when you actually become the legal property owner – not the specific exchange deposit described above. You get your bonus money at this stage.

Any Restrictions?

The home you buy must have a purchase price of up to £250,000 (or up to £450,000 in London), be the only home you own and be where you intend to live (not rent it out).

Which Banks / Building Society / Credit Unions Offer This Scheme?

How to Get This?

Open up a Help to Buy ISA account at your local bank. Because the scheme is government run, all banks, building societies and credit unions give the same bonus amounts.

When to Get This?

ASAP! I wish someone would have forced me into the bank to open one of these a few years back to get the most of it. If you are even thinking of saving towards a house then get this asap. Best case – you have more money for a house. Worst case – you don’t buy a house and take your savings out – to no penalty.

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