The Help to Buy ISA
2nd May, 2015
What is the Help to Buy ISA and how will it affect home buyers? Here are some pointers.
A further element to the Government’s Help to Buy scheme was announced by the Chancellor in the March Budget, the introduction of the Help to Buy ISA.
The ISA has been introduced to help first time buyers who are struggling to save sufficient funds for a deposit on their first home and is expected to become available in the autumn, with an exact date still to be confirmed.
The Help to Buy ISA is the third element to the Government’s Help to Buy scheme, which already includes the Help to Buy equity loan and the Help to Buy mortgage guarantee, and the Help to Buy ISA can be used in conjunction with either of the earlier schemes.
The ISA will be available through banks and building societies and first time buyers saving through the ISA will be able to save up to a maximum of £200 a month into their account in addition to an initial deposit of up to £1,000. The Government will then add an additional 25% to the savings so there is potential for the Government to add an additional £50 a month and up to £250 on an initial deposit of £1,000.
The Government’s contribution will be capped at a total of £3,000 on £12,000 of savings and will be calculated and paid at the point that the first time buyer purchases their home. It can be used towards a deposit on homes that are worth a maximum of £450,000 in London and £250,000 in the rest of the UK.
A first time buyer must be at least 16 years old when opening the ISA and each buyer can only open one Help to Buy ISA during the lifetime of the scheme. As with any other cash ISA, interest received on the account will be tax-free, but each provider will be able to offer their own interest rate for each account.
The Government’s contribution will then be calculated on both the amount the first time buyer has saved and the interest that has accumulated during the period that the account has been open.
First time buyers planning to open a Help to Buy ISA when they become available in the autumn should not open or add money to an existing cash ISA during this tax year because they would then be prevented from opening a Help to Buy ISA until April 2016. Savers cannot subscribe to both accounts in the same tax year.
Once the Help to Buy ISAs have been launched they can be opened for a period of four years, so they are expected to be available until autumn 2019, and once open it can be kept open and paid into for as long as required.
The Help to Buy scheme has so far helped 83,000 people purchase their own home through the existing Help to Buy equity loan and the Help to Buy mortgage guarantee and it is expected that the Help to Buy ISA will increase the figure further.
Please note that this briefing is designed to be informative, not advisory and represents our understanding of English law and practice as at the date indicated. We would always recommend that you should seek specific guidance on any particular legal issue.
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