New. Help to Buy ISAs - free cash
In a govt push to help first-time buyers, this week Help to Buy (H2B) ISA savings launched. Those 16+ can earn interest of up to 4% and then get 25% added on top when they use it for a mortgage deposit. Nothing else comes close. Parents - it's a great way to save for your kids' future.
The worry is that if there are more first-time buyers, this will up demand, and ramp up property prices. That could make this self-defeating, as even bigger deposits would then be needed. Yet for individuals it's a no-brainer, as if you're the only one not doing it, you miss out...
1. Help to Buy ISAs - what you need to know. Here are the basics...
- You can save £1,200 in your first month, then £200 each month after. When you use it for a deposit, a 25% bonus is added on top.
- The min you need saved to get a bonus is £1,600 (which'd be £400). You could do that by 1 Feb (£1,200 now, £200 in Jan, £200 on 1 Feb).
- The biggest bonus possible is £3,000 – which needs £12,000 saved.
- If you're buying with someone who's owned before you can get one, they can't. If two first-time buyers buy together, you can both get one.
- You need to use it on a property costing £250,000 or less, or £450,000 or less within the London boroughs.
- You don't have to use it for a deposit. You can make partial (or full) withdrawals. You'd still get the interest just not the bonus.
2. The top paying Help to Buy ISAs. 14 providers have launched deals, but as anyone can open (ie, you don't need to bank with it to get one), it's a straight fight and only two are worth considering.
The top payer: For most, it's best to just choose the one with the highest tax-free interest and by a mile that's the Halifax Help to Buy ISA at 4%.
The top if you also want a cash ISA: You're not meant to have a cash ISA and H2B ISA from the same tax year. Yet five firms offer 'split ISAs' that manipulate the rules so you can (max combined savings £15,240/yr); great for those who've already opened a cash ISA this tax year, as you can transfer it in and use some for Help to Buy. Nationwide is our top pick split, as it has the joint top H2B ISA rate of those at 2%, but the best cash ISA rates.
Most of the providers have now launched, and I think it's unlikely (no surety) other deals will launch soon that'll beat them. Full Top Help to Buy ISA rundown.
3. Don't think your Help to Buy ISA dictates your mortgage. H2B ISAs can be used with ANY residential mortgage (normal mortgage, new build, shared ownership, Help to Buy), just not buy-to-let.
And don't think if you get Halifax's Help to Buy ISA, for example, you must get its mortgage. You're free to get a mortgage from anyone (though it probably hopes you won't, hence why its Help to Buy ISA rate is so high) and should ALWAYS check across the market.
4. Where to save for your deposit if you've filled your Help to Buy ISA. If you've a lump sum, or you're saving £200+/mth (£400/mth if two first timers buying together), you'll need to save elsewhere too.
You want to put your cash in the account paying the highest after-tax interest. From 6 April, the new personal savings allowance means basic-rate taxpayers can earn £1,000 interest a year without tax, higher rate £500, so for most tax won't be an issue from then.
- Earn 3% on up to £20,000. Switch bank to Santander 123* and you get 3% AER on balances of £3,000 to £20,000. It does charge a £2/mth fee (£5/mth from Jan) but this is usually covered by the up to 3% cashback you get if you pay bills via it. For smaller amounts, other banks pay more. See Top Interest-Paying Bank Accounts.
- Top cash ISAs. You can still have past years' cash ISAs with a Help to Buy ISA (see Top ISA Transfers to max the rate). Yet for new money you'll need to use a split ISA like Nationwide's Help to Buy to be able to get a cash ISA too.
- Get up to 6% with a regular saver – some bank accounts also offer customers access to linked regular saver accounts where you can put up to £300/mth in with top rates. See Top Regular Savers.
5. What about Help to Buy mortgages? They're separate from the ISA; you can use them together but don't need to. There are two types:
- Help to Buy guarantee. This is the most well known. It's a scheme for lenders where the Govt covers some lenders' losses if someone doesn't pay up, which lets them offer more mortgages with just 5% deposits. It worked. Yet whether a mortgage is H2B or not is irrelevant to your mortgage choice.
- Help to Buy new-build equity loan . You put down a 5% deposit and the state gives you an interest-free loan for 20-40% depending on the scheme. Full info in Help to Buy & Other Mortgage Schemes.
6. Every 5% bigger deposit slashes your mortgage cost. The min deposit needed to get a mortgage is 5%. Yet rates on these are pants. Many have more saved, eg, 8% or 9%, but it makes no difference until you hit 10%.
Imagine you want a £150,000 home and have a £14,000 deposit – that's 9.3% so still within the 5% deposit band. The cheapest five-yr fix is 4.49%. Yet save just £1,000 more, and you've a 10% deposit – where the top five-yr fix is 2.99%, cutting mortgage payments by £1,400/yr – and you've borrowed less.
So if you're close, try to push to the next boundary. Increasing from 5% to 10% is the big change, but then each further 5% cuts rates, especially at 20% and 40% (after that there's little change). Play with our mortgage best buys comparison to see how it works for you.
7. FREE 60-page First-Time Buyers' Booklet. A mortgage is most people's biggest expenditure, so make sure you know what you're doing. My PDF guide takes you through step-by-step. Katie tweeted: "Just read the First-Time Buyers' Mortgage Guide from start to end. Martin Lewis knows his stuff."
It includes credit scoring, affordability checks, how to choose the right mortgage, what to do about fees, should you get a fixed deal, using and choosing good mortgage brokers and more (though we haven't added Help to Buy ISAs in yet)...
8. Interrogate your options with eight calculators. Use our mortgage calculators to compare deals, find monthly payments, see how much you can borrow & more...
Mortgage Best Buy Comparison Tool
First-Time Buyers' Mortgage Best Buy Comparison Tool
(or alternatively, our Remortgage or Moving Home tools)
Ultimate Mortgage Calculator
Eight tools to home in on the right answer for you, incl...
Basic Mortgage Calc | Compare Two Mortgages | How Much Can I Borrow? | Compare Fixed Mortgages | Saving For A Deposit