Too many times I have sat across from first time buyers and when I ask them if they have a Help to Buy (HTB) ISA they say ‘no’ and then start to explain how it was too complicated and too restrictive for them so they decided not to get one. Now there is a lot of confusion around this area so let’s make some things clear.
What is a Help to Buy ISA
It is a specific savings account to save for the purchase of your first home. You can pay in up to £1,200 when opening (or within the first 30 days) and then after that you can only pay in £200 a month or less. You can go with any bank you choose but the normal ISA rules apply, so you can only have the one ISA account per person. In many circumstances you will be able to open an account online within a few minutes. When you buy a property, the government gives a bonus of 25% of the closing amount held in your account.
There are certain requirements which you must satisfy to be able to claim the bonus and without getting too complicated you must generally be a resident in the UK for tax purposes, not own or have an interest in another property either in the UK or elsewhere, you have not previously received a bonus, you are buying with a mortgage and you intend to occupy the property as your main residence (exceptions apply for Armed Forces). The property price can be up to £250,000 (up to £450,000 for properties in London).
How it works
You can pay in up to £1,200 when opening (or within the first 30 days) and then after that you can only pay in £200 a month or less. You can go with any bank you choose but the normal ISA rules apply, so you can only have the one ISA account per person. The minimum amount required before you can claim a bonus is £1,600. This therefore means you can claim your bonus within three months, if you open the account with £1200 and then pay in £200 for the next two months. The maximum bonus the government will pay is £3,000 for which you would need to have savings of £12,000. This would take you 55 months to save if you opened the account with the maximum amount. Therefore, even if buying a home is not something you are considering at this time, if you have the means opening an ISA now would allow you to start building up some savings. If you change your mind you can always retrieve the money from your ISA and use it for whatever you please, you just won’t receive the government bonus. This means if you follow the rules you have the opportunity to claim the bonus but you are under no obligation to and the account will work like any other ISA.
The fixed fee solicitors can charge for dealing with your Help to Buy ISA is £50 plus VAT. You should tell your conveyancer at the outset that you using a HTB ISA. A minimum of 2 weeks is suggested to request funds and this is all done by your legal representative. Once you are near the end of the transaction you will be asked to close your account and forward your closure letter. You will also be required to complete a Buyer Declaration confirming you meet the requirements (as briefly set-out above). When you close your ISA the money in your account and any interest will be transferred to whatever account of yours you request, you can then use this towards your deposit or final completion funds. The bonus will be calculated on your balance (including any interest) and the amount will be paid directly to your conveyancer on completion.
What it is not
The HTB ISA is not linked to the Help to Buy Equity Scheme, Shared Ownership or any other government scheme. You can be buying through shared ownership and still have a HTB ISA.
Once you open the ISA you can take out your money and use it for something else, you just will not get the bonus.
Is it really worth it?
This of course depends on your own view. If you opened the account at the beginning of the year and saved the £200 a month, by the end of the year you would have £3,200, giving you a bonus of £800, which in most cases would cover most of your legal costs. Many buyers spend time shopping around for competitive legal costs, so it may be worth spending the time opening the HTB ISA and claiming the bonus.