Skip navigation

How the Help To Buy ISA can help you onto the property ladder

Share:

The government has just launched a savings programme which will give first-time buyers up to £3,000 towards the cost of a deposit on a starter home. Here’s how it works.

Couple moving house

This month sees the launch of another government scheme aimed at helping first-time buyers take their first steps on to the property ladder.

The Help To Buy ISA, which was announced in last March’s Budget, offers a cash bonus of up to £3,000 to people who are saving up for a deposit on their first home.

£50 monthly bonus

Other parts of the Help To Buy programme include cheaper mortgages for borrowers with smaller deposits and assistance with the purchase of new-build homes.

The ISA, which was launched on 1 December, gives savers a monthly bonus of up to £50 a month, and £300 in the first month.

So who is eligible for the scheme and how does it work?

A Help To Buy ISA can be opened by anyone aged 16 or over who has not owned a property before.

Limits on property prices

Piggy bank

An initial lump sum of up to £1,200 can be used to start the account with further monthly deposits of as much as £200 allowed.

The government will add a bonus worth 25% of any amount saved – so a maximum of £300 in the first month and £50 a month thereafter – when the cash in the ISA is withdrawn and used towards a deposit on a first home.

The value of this purchase is, however, limited to £250,000 or £450,000 in London – although it is expected that these prices will be uprated in line with housing market inflation in future.

Couples and groups of friends can pool their Help To Buy ISA holdings to buy a home together if they wish.

Extra interest

As well as the government’s bonus, providers of these ISAs will pay interest on any money saved – and as with standard cash ISAs, this interest will be free of income tax.

In total, an individual saver would need to put £12,000 into their ISA to qualify for the full £3,000 from the state.

The shortest period in which this could be done is four years and seven months.

A number of banks and building societies have now announced details of their Help To Buy ISAs.

Scheme generates interest

Piggy bank with pound coins

Halifax, for example, is paying 4% interest a year, while Nationwide’s ISA pays 2% interest but also offers access to discounts on its range of mortgages aimed at those with small deposits.

It is likely that a number of providers will give incentives for their Help To Buy ISA customers to go on to take out a mortgage with the same firm.

Research from the Halifax suggests the saving scheme is likely to be popular: the bank found that just under half of prospective first-time buyers were likely to open one of the ISAs.

At the same time, 52% of this group said that the main barrier to getting on to the property ladder was the size of deposit they needed to put down on their first purchase.

Will this be enough?

Giles Martin, head of Halifax Savings, said: “It is clear from our research that while some people are still worried about the challenge of saving for a deposit, many see the new Help to Buy ISA as a genuine solution.”

Kevin White at financial advisor deVere added: “In effect, this is free cash from the government and anyone who is aspiring to buy their first home would be mad not to do this.”

But White said that people would typically need much more cash to use as a deposit.

“Even with the maximum ISA saving plus the government bonus, meaning a total of £15,000, most first-time buyers will still find that they’re £15,000 short for the average deposit.”

Share:

Compare home insurance

Find buildings and contents insurance for your home, quickly and easily with Confused.com

Get a quote

Related articles

Home insurance

Compare up to 75 home insurance providers.

Get a quote