Last Call for Help to Buy ISAs
Saving a deposit for your first home can seem like a huge challenge, with recent research finding that the average deposit required for a first-time buyer stands at a whopping £38,418! This substantial figure, alongside the ever-increasing cost of rent, can make getting your foot on the property ladder seem like a distant dream for many. The key to building up a deposit is, quite simply, to start saving as much as you can as soon as you can. There are however a couple of ways in which the Government can help give first-time buyers a hand.
Help to Buy ISA
If you’re more than three months away from completing your first property purchase, then a Help to Buy ISA could be for you. In fact, as it’s calendar months, it’s possible to reach the £1,600 minimum contribution required to receive a bonus in just over a month e.g. 31st October £1,200, any time in November £200 and 1st December £200! To be eligible for a Help to Buy ISA you must be a first-time buyer, be over 16, have an NI number, be a UK resident and not own a property anywhere else in the world.
Like a standard Cash ISA, interest is not taxed. But unlike a standard Cash ISA, the Government will add 25% to the amount you’ve saved, when you buy your first property. Save £3,000 and you’ll get a £750 bonus; save the maximum £12,000 and you’ll get a £3,000 bonus. If you’re planning to buy with a partner and are both eligible for a Help to Buy ISA, you can receive a total combined bonus of up to £6,000. However, be quick as the Government’s offer of free money for people saving for a deposit on their first home closes to new investors in November this year!
The Key Rules
Before you think about depositing the full £12,000 in one fell swoop, there are a few rules to watch out for:
- Contributions – you can start the ISA off with a £1,200 contribution, but you’re limited to £200 per month thereafter (usually by standing order). Contributions can be made until 30 November 2029.
- The Government “Bonus” – nothing is paid unless you’ve saved at least £1,600. This will gain a £400 bonus. And the maximum 25% bonus is £3,000, meaning you’ll need to have saved at least £12,000. The 25% bonus applies to the amount in your ISA. In other words, the interest you earn will also gain bonus.
- Receiving the bonus – when you buy your first home, the bonus is claimed by your solicitor and added to your deposit money. The bonus must be claimed by 1 December 2030.
- Cost of home - the home you buy must cost no more than £250,000 outside London, £450,000 in London itself and must be for your own occupation (i.e. you’re not allowed to rent it out). It must also be purchased with a mortgage.
If you are over 18 and below age 40, you will also be eligible for the Lifetime ISA (LISA). Here are some key points on LISAs:
Can only be opened by savers between the age of 18 and 39.
Government will offer a bonus of 25% which is added to the plan each month
If you have a Help to Buy ISA and a Lifetime ISA you can only use the government bonus from one of them to buy your first home
Savers can pay in up to £4,000 per year for a bonus of up to £1,000 until the age of 50
The government bonus can only be used in two scenarios:
For a purchase of a first home for £450,000 or less, any time after the LISA has been open for at least 12 months
To fund retirement from age 60
If you withdraw money from your Lifetime ISA for any other reason, except in the case of terminal illness, you’ll usually have to pay a 25% withdrawal charge.
Despite these Government incentives it’s still a tall order to save up such a large sum of money. An increasing number of people are choosing to move back in with their parents to save cash faster for a deposit, while others rely on gifts or loans from family members. To help, LEBC will shortly be launching its savings and budgeting app Hummingbird, to register for more information please e-mail firstname.lastname@example.org
Marketing Assistant, LEBC
Please remember, no news or research item is a recommendation or advice to buy. Aspira is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment or product for your circumstances please contact an adviser. All investments can fall as well as rise in value so you could get back less than you invest. Any levels and bases of, and reliefs from, taxation, are subject to change. Taxation advice is not regulated by the FCA.
Back To List