The Help to Buy ISA
07th December 2015
The Help to Buy ISA is the latest Government bid to boost rates of home purchasing. Diane Lawton, Associate in the Property team, takes a look at the account.
The Government’s Help to Buy Scheme was introduced in 2013 to help first time buyers get onto the housing ladder. According to Government figures, the Help to Buy Scheme has helped over 83,000 people buy their own home.
The Help to Buy Scheme enables buyers to buy a property with a deposit of only 5%. The Help to Buy Agency provide a loan of up to 20% of the purchase price. The Scheme is only available to people who are buying their own home. It is not available to anyone who wants to buy to let, investors or people who already own another property.
If a buyer proceeds with a purchase under the Help to Buy Scheme, they will pay nothing on the amount that the Help to Buy Agency has contributed (the “equity loan”) for the first five years after completion of their purchase. After the initial five-year period, the equity loan is then subject to a fee of 1.75% per annum, which is payable on the outstanding amount of the equity loan.
The Government has now launched a Help to Buy ISA. From 1 December this year, a first-time buyer can begin saving for a deposit by opening a Help to Buy ISA.
The Help to Buy ISA is only available for first-time buyers and will allow them to save up to £200 per month to be used towards a deposit for their new home. The Government will add to the buyer’s savings, up to a maximum of £3,000.
If, for example, a buyer has saved £12,000 in a Help to Buy ISA, the Government would boost that fund up to £15,000. For basic rate tax payers, this will be the equivalent of tax-free saving for their first home.
The money in the Help to Buy ISA does not have to be the buyer’s sole source of deposit funds – they can contribute towards their deposit from other sources. If, after paying money into their Help to Buy ISA, the buyer decides that they do not want to proceed with their purchase then they can withdraw their savings, but they will not receive any bonus.
The Help to Buy ISA is available for individuals and so if two first-time buyers are buying a property together, they will have the benefit of one Help to Buy ISA each.
The Government has outlined the procedure to be followed to obtain the bonus under the Scheme:
The first-time buyer deposits money into a Help to Buy ISA account.
When they are ready to purchase their first home, the first-time buyer closes their account and receives a closing letter from their ISA Manager.
The first-time buyer gives the closing letter to their Solicitor.
Using the letter, the Solicitor applies online for the Government bonus.
The bonus is transferred to the Solicitor, who completes the purchase of the home using the full bonus amount.
Further information about the Help to Buy ISA Scheme is available via the Government website.
If you are considering opening a Help to Buy ISA, you should seek independent financial advice beforehand.
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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