Help to Buy ISAs

The 15 Help to Buy ISA need-to-knows

• You can save up to £1,200 in your first month, then up to £200 a month after that

  If you've got less, you can put in less and it'll still work, and you can keep contributing as long as the scheme lasts.

  If you miss a contribution one month, it's not a problem, though you can't make it up the next month (ie, you can still only put £200 in the next month).

  If I don't have the full £1,200, should I wait to open one?

  That depends on whether you are able to save more than the £200 a month in subsequent months. If you are, then you may as well wait to fill it up to the max – to get the biggest bonus.

  If not, don't delay. Get what cash you can in now; that way you earn interest more quickly.

  Are my savings safe in a Help to Buy ISA?

  Help to Buy ISAs are savings accounts, there is no investment risk. The only risk is the slight one of the bank or building society going bust. Yet all the providers we include have the full UK £85,000 safe savings protection and Help to Buy ISAs are covered by that.

  The only thing to watch is that this is by banking institution not per account. So if you have other savings in the same place as your Help to Buy savings, it could take you over the limit. If so see the Savings Safety guide for more info.

• The state adds 25% tax-free to whatever is in the ISA when you use it to buy a home

  Even with all the hype about the personal savings allowance, if you're a first-time buyer, putting your cash in a Help to Buy ISA (or a Lifetime ISA) before thinking about any other savings is a no-brainer.

  So at the point you use the ISA to buy your first home, all the money you have put in and the interest will have 25% added to it, with two exceptions:

  • You need to have at least £1,600 saved to get the bonus (so you'd get £400 extra).
  • The most you'll get the bonus on is £12,000 (so a £3,000 bonus). If you have more than that you can still use the ISA to save, you just won't get more than £3,000 on top.

  How much state top-up you'll get

  Amount in Help to Buy ISA	Bonus Added	Amount in Help to Buy ISA	Bonus Added
  £1,600 (the minimum to get bonus)	£400	£7,000	£1,750
  £2,000	£500	£8,000	£2,000
  £3,000	£750	£9,000	£2,250
  £4,000	£1,000	£10,000	£2,500
  £5,000	£1,250	£11,000	£2,750
  £6,000	£1,500	£12,000	£3,000

  The bonus scheme's set to keep paying out on Help to Buy ISA savings until December 2030. So you could put in just a small amount per month and take years to build up your bonus. However, you risk a future government changing the rules before 2030, meaning they'll stop paying bonuses.

  Is it worth me getting one if I'm buying a home in the next few months?

  Yes, definitely. Even if you won't get the maxed-out bonus as you're buying sooner, the Help to Buy ISA is still worth getting. The truth is, house prices can always change, which could negate the benefit of the government bonus anyway.

  Instead, get a Help to Buy ISA and pay into it until you're ready to buy. As long as you've saved the minimum of £1,600 (which you'll be able to do after three months if you save the maximum amounts), you'll be eligible for the 25% top-up from the Government.

• Every first-time buyer aged 16 and over can open one

  Anyone can get one, as long as you're a first-time buyer or plan to be in the future and frankly even if you've only an inkling you may buy a house, it's worth starting it off.

  You can open one anytime until December 2019 and you'll be able to save in it until December 2029. The bonus will added as long as you use it for a deposit by December 2030.

  As for what a first-time buyer is – the definition is strict. It's someone who doesn't own and has NEVER owned an interest in a residential property, either inside or outside the UK, whether it was bought or inherited.

  Can I open one for my children? Is it a good idea?

  Once children are 16 they can get a Help to Buy ISA and, if you're looking to help them in future, it's a potentially lucrative way to do it. You can then give them money to put in it and, if they later use it for a deposit, they get the 25% added on top. However, they must open the account, not you.

  And as I'll explain below, if they decide not to use it for a property, they still get the cash and the interest out, just not the extra 25% on top.

  Can 16 & 17 year olds have a Help to Buy ISA and a Junior ISA at the same time?

  We checked this with HMRC and it told us that just as you can have a 'normal' cash ISA and a junior ISA at the same time if you're aged 16 or 17, the same applies with a Help to Buy ISA.

  However, you must open the Help to Buy ISA yourself in your own name – a parent can't do it for you.

• It's an individual product, couples are treated separately

  Help to Buy ISAs are for individuals, it's not about who's buying the house, it's simply about whether you're a first-time buyer. To make it plain:

  • If you're a first-time buyer, buying with someone who's owned before, you CAN open one, they CAN'T.
  • If you're a first-time buyer, buying with another first-time buyer, you CAN BOTH open one. So, together, you can save £400 a month and double the bonus.
  

• It can be used for any property costing under £250,000 (£450,000 in London) and any mortgage

  The bonus will only be available on homes worth up to £250,000, or £450,000 in London (defined as inner and outer London boroughs). Unlike some other government schemes, you're not restricted to buying a new build; any property works – provided you're buying with a mortgage (you won't get the bonus if you're a cash buyer).

  • You can use it with any mortgage type, it DOESN'T have to be a Help to Buy mortgage (though it can be), but it must be a residential mortgage, including self-build and shared ownership, but not buy-to-let.
  • Do note, though, with shared ownership, that you'll only get the bonus if the total property price is under £250,000 (£450,000 in London) – it's not based on the price of the proportion you're buying.
  • It doesn't need to be your sole deposit money, you can combine it with other savings (see where to save the rest).
    
  • You're not tied into getting a mortgage from the same bank you open your Help to Buy ISA with. Always check the whole mortgage market before you choose one, our mortgage comparison can help and get the free first-time buyers' mortgage guide too.
  • You don't need to be named on the mortgage in order to use your bonus, though you must be on the title deed of the property you're buying – and some lenders may require everyone named on the title deed to be named on the mortgage too.

• You CAN rent out your property if you've used a Help to Buy ISA as part of the deposit

  When you use a Help to Buy ISA to buy a home, you sign a declaration saying that you won't rent the property out – the Government's idea is to encourage homeownership, not help people start burgeoning property empires.

  But this was such a restriction, we queried it with the Treasury – what happens if people's circumstances change? For example, if you had a job abroad for a couple of years, but wanted to keep the home and move back in when you came back to the UK – would you have to sell the property?

  The Government saw the sense in the question, and has now partly relented...you will be able to rent your property out if your circumstances change down the line.

  However, if you're buying the property with the sole intention to rent it out, this still isn't allowed. If caught, the government would seek to get its bonus money back from you.

  Read full details of our challenge to the Treasury in Martin's can I rent out my home if I used a Help to Buy ISA?

• You can only open one Help to Buy ISA, but you can transfer it to up the rate

  Unlike a cash ISA – where you can pay into a new one each tax year – you're only allowed one Help to Buy ISA (ie, from one provider) full stop. But you can continue to add to it each tax year.

  And although you're only allowed to get one Help to Buy account, you can transfer it between different providers to chase the best interest rates.

  So it's important to monitor the interest rate you're getting and, if it drops, find a new Help to Buy ISA provider paying a better rate (you'll need to ask it to transfer your existing one when you open your new account – don't take the money out yourself).

  And of course with the Help to Buy ISA, just like any other ISA, the interest you earn is tax free, so you get to keep all of it.

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• You're not supposed to contribute to a Help to Buy ISA and a cash ISA in the same year, but...

  The rules say you can't pay into a cash ISA and a Help to Buy ISA in the same tax year (usually). Though nothing prevents you opening a Help to Buy ISA if you have cash ISAs from previous years, or a stocks & shares ISA from any year.
  
  Yet there is a way round this. Several providers allow 'split ISAs' – here they manipulate the rules to put the Help to Buy ISA and a cash ISA together in the same wrapper, effectively allowing you to have both. Remember, your maximum ISA allowance per tax year is £20,000 so your combined ISA savings (the amount you put into an ISA) can't exceed this.

  Doing this is 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. If this works for you see the top pick Help to Buy ISA split below.

  The only negative for doing this is you may get lower rates on both your Help to Buy ISA and cash ISA by linking them together. If this isn't for you it's worth remembering while a cash ISA lets you save more, getting a Help to Buy ISA still beats it as the 25% state-added bonus is far bigger.

  What should I do if I've already opened a cash ISA?

  If the amount is less than £1,200 (the amount allowed in a Help to Buy ISA in the first month) you can simply transfer it to a Help to Buy ISA. If it's more…

  • The most obvious thing is to just transfer it into the top Help to Buy ISA split so you can keep it open and move money into a Help to Buy ISA.
  • Or you could withdraw any money you put in a cash ISA this year (and interest from it), then open up a new Help to Buy ISA. Though if you've a lot in, remember the amounts you can put in a Help to Buy ISA are far smaller than the amounts in a cash ISA.
    
    But it's worth noting the 'loss' of your cash ISA allowance is now mitigated somewhat, as the personal savings allowance means basic-rate taxpayers are allowed to earn £1,000 tax-free interest in all savings (£500 for higher-rate payers).
    
    We've checked this information with HMRC and it is allowed under the ISA rules, but we've had reports that some banks aren't allowing this, so it's best to play it safe and do the split if you already have an ISA this year.
  • You could transfer the money into a stocks & shares ISA. The money's reclassified as stocks & shares ISA money, not cash ISA, so you can then open a Help to Buy ISA.

  I've used my Help to Buy ISA for a home. Can I now open a cash ISA this tax year or do I have to wait until next?

  Yes, you can open a cash ISA once you've closed your Help to Buy ISA.

  Normally you can only pay new money in to one cash ISA per tax year (Help to Buy counts as a cash ISA), but a little-known exception to the rule is that you're allowed to pay in to a second (but no more), if you've fully closed the first, not just emptied it.

  As you need to fully close the Help to Buy ISA to get the bonus to buy a home, you'd be free to open a new cash ISA this tax year.

• You need to get your solicitor to apply for the bonus cash when you buy a home

  When you're ready to buy, to get the bonus, you let your ISA provider know that you're closing down your Help to Buy ISA account, and transfer the funds into another account (or your solicitor's account). You'll then receive a closing letter from your ISA provider, which you need to give to the solicitor who is doing your conveyancing (house buying) work for you.

  The solicitor then uses the letter to apply online for the government bonus, between the stages of exchanging and completing on your home purchase. Beware! Because it's admin work, and takes time, solicitors are allowed to charge up to a maximum of £60 (£50 + VAT).

• The Help to Buy ISA bonus only helps with the mortgage deposit, NOT the exchange deposit

  When you're buying a home there are two types of deposit (though the same money's generally used for both). And, as the Government decided you'd only get the Help to Buy ISA bonus at completion (so no one could get it if they pulled out of a property sale), it only helps you with one of these types; and it's important to understand the difference.

  • The Home Exchange Deposit: During the process of buying a property, after your offer is accepted, once you've checked everything out you normally exchange contracts with the seller. At this point the seller will usually ask you to put down a 10% deposit (sometimes it can be negotiated lower to 5%) to secure the property. After that no one else can trump you as both you and the vendor are committed to the sale.

    You then have time to work through your finances and any other issues towards completion which is when you and the mortgage company hand over the remainder of the cash (see Buying a Home Timeline for more).

    While you can use the money you've saved in a Help to Buy ISA towards this exchange, it's only at completion that you receive the mortgage money and Help to Buy ISA bonus; so the bonus won't help towards the home exchange deposit.

    So, if you are relying on the Help to Buy ISA bonus to get you to 10% (or indeed only have a 5% deposit in total), it could be a problem. However, in most cases, it'll be worth trying to negotiate with the seller (probably via your solicitor) on this.

    Be honest with them about the Help to Buy ISA bonus. If the seller wants the sale to go through, they could agree to a lower deposit (possibly with the right to chase you in court for the full 10% if you later pull out).

    But, according to brokers we've spoken to, as long as you are upfront about your reliance on the Help to Buy ISA bonus, it shouldn't be a major issue. Most vendors are unlikely to pull out of a house sale because of a small shortfall which will be made good in just a matter of days when you finally complete.

  • The deposit at completion (sometimes called the mortgage deposit): It is this final deposit when you actually become the legal property owner – not the specific exchange deposit described above – which the Help to Buy ISA bonus is for.

    Say you're buying a £100,000 property, and have saved £8,000 in a Help to Buy ISA; with the bonus you'll have £10,000, so a 10% deposit in total. You’d have been able to use your £8,000 at the exchange stage but can only get the additional £2,000 at this point of completion. That helps to reduce the amount you need to borrow and cuts the cost of your mortgage rate too.

• You can take the money out whenever you want even if you're not buying a property

  If you decide not to buy your first home (or to buy one costing more than the qualifying amount) you don't lose the money. You can take money out of a Help to Buy ISA whenever you want – you just miss out on the bonus. It'll still be tax-free and you'll still get the interest you're due.

  The rules also allow you to make partial withdrawals, while keeping the Help to Buy ISA open (though withdrawal rules will depend on your provider). You won't be eligible for the bonus on the amount withdrawn, but you can still keep contributing afterwards and will still get the bonus on whatever is in the account when you use it for a deposit.

  It's this fact that makes the accounts such an attractive option – especially as the Help to Buy ISA rates tend to be higher than normal cash ISAs. So you can put your cash in IN CASE you may buy a home with it, and there's little downside if you don't (barring missing out on the larger tax-free amount you can save in a cash ISA) and a huge upside if you do.

• It's worth doing even if you're buying soon and have already saved

  The minimum amount you need to get a bonus is £1,600 (you would get £400) and while that takes 'three months' to do, in practice you can do it far quicker with most accounts. The reason it's three months' worth is because you can deposit £1,200 in month one then up to £200 in each subsequent month.

  Yet as a month is a calendar month, in practice you may be able to do this far more quickly, if the dates fall for you.

  For example you could put £1,200 in on 31 January, then £200 in during February, and the final £200 in on 1 March just 30 days later and you'd be ready to go.

  Therefore, assuming you're eligible, even if you have savings elsewhere, if you won't be completing within the next month, it's worth moving what you can into the Help to Buy ISA to get the bonus. Do check that your bank allows this – some have a cut-off date each month for paying in.

• Lifetime ISAs tend to beat Help to Buy ISAs, but offer less flexibility

  The Lifetime ISA (LISA) launched on 6 April 2017, and just like the Help to Buy ISA, it gives a 25% bonus on top of what you save. The LISA is designed both to help you buy your first home, and to save for retirement, and can be opened by anyone aged 18 to 39.

  The main difference is that you can save £4,000 a year in a Lifetime ISA, compared with £2,400 (£3,400 in year one) in a Help to Buy ISA. The bonus is also paid differently – with a Lifetime ISA it's paid monthly. Plus, with a LISA, you need to wait a year before using it to buy a home, and there's a penalty for early withdrawal.

  • You can have both a Help to Buy ISA and a Lifetime ISA – even if the Lifetime ISA is a cash LISA. This is because the Lifetime ISA is a whole new type of ISA.
  • However you can only use the bonus from one of them towards buying a house.
  • Use the LISA for the 25% bonus to buy a home, you won't get the bonus with the Help to Buy ISA, but you can still keep the money plus the interest (and use it towards buying your home).
  • Use the Help to Buy ISA for the 25% bonus, and you'd have to pay a penalty to use your LISA savings for a property, though you would still be able to use it and get the bonus for retirement savings.

  While the LISA allows you to save more, the Help to Buy ISA wins for some as our table shows:

  Lifetime ISAs vs Help to Buy ISAs – which wins?

  	Lifetime ISA (for home purchase)	Help to Buy ISA
  Max contribution?	£4,000/yr	£2,400/yr (£3,400 in year one)
  Lump sums?	Yes	No, need to save monthly
  Max bonus?	£33,000 (assumes max contribution every year from 18-49)	£3,000 (assumes max contribution over four years and eight months)
  When's the bonus paid?	First year's bonus paid in April/May 2018; after which it's paid monthly	On completion when you buy a home
  Investment option too?	Yes, via stocks & shares LISAs	No. Cash savings only
  Max property price?	£450,000	£250,000 (£450,000 in London)
  How quickly can you use it?	After the LISA's been open 12mths	Once you've £1,600+ saved (can be done in min 3mths)
  Who can open it?	Anyone aged 18 to 39	Any first-time buyer aged 16+
  What can it be used for?	The home deposit and mortgage deposit	Just the mortgage deposit
  Can I withdraw money if not buying a home?	Yes, at age 60+; if earlier you don't get the bonus and will pay a penalty	Yes, at any time, you just don't get the bonus

  Hopefully the table gets you there. If not, in summary...

  - If you'll DEFINITELY buy a home, for less than the LISA maximum of £450,000, are aged 18 to 39, and you won't do it within a year, go for a Lifetime ISA as you will get a bigger bonus.

  - If you are older, NEED TO BUY QUICKLY or you're not 100% sure you'll buy at all then it's safer to stick with (or get) a Help to Buy ISA.

  Can I transfer my Help to Buy ISA into a LISA?

  You can indeed, though any money you transfer in will count towards your annual £4,000 LISA allowance. So, if you've already put money into your LISA in one tax year, you wouldn't be able to transfer the full £4,000 from your Help to Buy ISA.

• Where to save for your deposit if you've filled your Help to Buy ISA

  We've coloured this number in red as it's not really about Help to Buy ISAs. But, if you've got a lump sum, or you're saving over £200/mth (£400/mth if a couple of first timers buying together), you'll need to save elsewhere too.
  
  Quite simply, you want to put your cash in the account paying the highest after-tax interest. The new personal savings allowance means basic-rate taxpayers can earn £1,000 interest a year without tax, higher rate £500, so for most people tax is no longer such a big issue on where you save. So here are our top tips:

  • Earn 5% for 1yr on up to £2,500. Open a Nationwide FlexDirect account and you get 5% AER fixed for a year on balances of up to £2,500 (1% AER variable after). You can also earn up to 3% with other 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 5% 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.

  Have a question we've not answered? Let us know in the Help to Buy ISA forum discussion.