Help to Buy ISA 2019: should first-time buyers open an account before the Government bonus scheme closes?
The Government’s offer of “free money” for people saving for a deposit on their first home closes to new investors in November.
So should would-be buyers rush to take out a Help to Buy ISA, or let the opportunity pass them by?
The answer depends on a buyer’s individual circumstances, but those who can save regularly and have time to let their account build up could walk away with a £3,000 bonus.
How the Help to Buy ISA works
The Help to Buy ISA lets buyers put up to £200 a month into a special savings account.
To kick-start your account, in your first month you can deposit a lump sum of up to £1,200.
Interest rates are low, as they are everywhere on the high street.
Up to £6,000: the maximum possible government bonus if couples join their ISAs together (Shutterstock / Ink Drop)
Even if you shop around you are only likely to earn about 2.5 per cent. But the interest is tax-free and for every pound you save, the Government will chuck in an extra 25p.
Couples can open individual ISAs and put them together when they are ready to buy, giving them a maximum possible government bonus of up to £6,000.
Savers who change their minds can take out their money at any time, although they will forgo the bonus payment.
The Government says more than 225,000 bonuses have been paid since 2013 and calculates that first-time buyers who make use of the scheme are able to buy a property three years earlier than those who do not.
Good to know
The problem with the Help to Buy ISA, particularly for London buyers, is that it represents only a drop in a very deep ocean.
The average first-time buyer puts down a 15 per cent deposit, which works out at £63,000 on an average-priced first home in the capital, now worth £420,000.
If a first-time buyer opens a Help to Buy ISA with £1,000 this year and then saves the maximum £200 per month, it will take them until late 2023 to get their savings to £12,000 and be eligible for the maximum £3,000 bonus.
But they will still be almost £50,000 adrift of that average deposit payment — or more than £30,000 short if buying as a couple.
Also, the bonus cannot be used to put towards the deposit when buyers exchange, or to pay for solicitor or agent fees.
However, that doesn’t mean the scheme, which closes in November, is a total write-off.
For buyers who want to move fast, the amount of bonus they will earn in the first year will probably only amount to a couple of hundred pounds.
But for those thinking long term, it is a safe way of slowly building up a deposit pot.
You don’t have to put the full £200 in each month — you can save as slowly as you like, as the scheme remains open to existing savers until 2030.
Visit helptobuy.gov.uk/help-to-buy-isa/how-does-it-work/ to find more information about the Help to Buy ISA scheme.