Help to Buy ISAs
Now closed for newbies – need-to-knows if you've already got one
Help to Buy ISAs are now closed to new applicants. Didn't get one in time? Lifetime ISAs also offer a 25% bonus for first-time buyers. But if you do have a Help to Buy ISA, here's everything you need to know, including how to claim the 25% bonus, whether it's worth transferring to a Lifetime ISA and how to get a better rate by changing provider.
What is a Help to Buy ISA?
Help to Buy ISAs are no longer open to new applicants. But, if you already have one, they let you save up to £200 a month towards your first home, with the state adding a 25% bonus (max £3,000) on top of what you save. Plus you earn interest on whatever you save, and as it's an ISA, that interest is tax-free.
However, you only get the bonus when you use the Help to Buy ISA cash as a deposit for your first home. The way is works is a bit complex, so do read our need-to-knows if you're getting close to using your Help to Buy ISA savings to buy a property.
The 12 Help to Buy ISA need-to-knows
You can save up to £200 a month in your Help to Buy ISA. If you've got less, you can put in less each month. 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 in £200 the next month).
The deadline to open a Help to Buy ISA has now passed. But if you've already got one, you can keep saving in it until 30 November 2029. You’ll then have until 1 December 2030 to claim the 25% state bonus.
Are my savings safe in a Help to Buy ISA?
As 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 banking institution (for more on what this means, see our Savings Safety guide) as your Help to Buy ISA savings, it could take you over the limit, particularly if you have a large deposit.
2. The state adds 25% tax-free to whatever is in the ISA when you use it to buy a home, up to a max £3,000 bonus
At the point you use your Help to Buy ISA savings towards buying your first home, all the cash you've saved, and the interest, will have 25% added to it, with two exceptions:
- You need to have at least £1,600 saved to get any 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.
£1,600 (the minimum to get bonus) £400 £3,000 £750 £5,000 £1,250 £8,000 £2,000 £10,000 £2,500 £12,000 £3,000
The bonus scheme's set to keep paying out on Help to Buy ISA savings until 1 December 2030. So you could put in just a small amount a month and take years to build up your bonus. However, you risk a future Government changing the rules before 2030, meaning it'll stop paying bonuses.
If you've got a Help to Buy ISA and you're buying with someone else who also has one, you can save up to £400 a month across your two Help to Buy ISAs and, when you come to buy, double the bonus.
Similarly, if the person you're buying with has a Lifetime ISA, you can both get the bonuses when you buy.
The bonus will only be available on homes you buy for £250,000 or less, 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 used with a Help to Buy equity loan (though it can be), but it must be a residential mortgage, including self-build and shared ownership, NOT buy-to-let.
- Do note, though, with shared ownership, you'll only get the bonus if the total property price is £250,000 or under (£450,000 in London) – it's not based on the price of the proportion you're buying.
- The property price limit is absolute – it doesn't double if you're buying with another Help to Buy ISA holder.
- It doesn't need to be your sole deposit money, you can combine it with other savings (see where to save the rest).
- You don't need to get a mortgage from your Help to Buy ISA provider. Always check the whole mortgage market before you choose one. Our Mortgage Comparison tool can help and get the Free First-Time Buyers' Mortgage Guide guide too.
- You don't need to be named on the mortgage 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.
When you buy 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 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're 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 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.
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).
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 of renting it out, this still isn't allowed. If you're 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? blog.
Though many providers have now withdrawn their Help to Buy ISAs from the market, a few still allow transfers in for those who already have one.
Therefore it's important to check the rate you're getting from your provider to see if you can do better elsewhere. The top paying accounts are below.
Note: you'll need to ask the new provider to transfer your existing account when you open the new one – don't take the money out yourself.
9. You can't pay into a cash ISA if you've paid into a Help to Buy ISA this tax year (unless you've a split ISA)
A Help to Buy ISA counts as a cash ISA and you can usually only pay into one of these in the same tax year.
There's one exception. Before the scheme closed to newbies, a few providers offered 'split ISAs' – here they manipulated the rules to put the Help to Buy ISA and a 'normal' cash ISA together in the same wrapper, allowing you to pay into both in the same year.
If you don't have a split ISA and you're looking to put more money away, check out our Top savings accounts guide.
How do I know if I have a split ISA?
Before the scheme closed to new applicants, there were only a handful of providers offering this kind of ISA – NatWest, Ulster Bank, Nationwide, Newcastle Building Society and Aldermore. If you have a Help to Buy ISA from any other provider, you likely won't be able to pay into another cash ISA in the same tax year. Though of course you have other options for putting money away.
Remember, your maximum ISA allowance per tax year is £20,000 so you can't put more than this into ISAs in the same tax year.
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 into 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 into a second (but no more), provided you've fully closed the first, not just emptied it.
As you need to close the Help to Buy ISA fully to get the bonus to buy a home, you'd be free to open a new cash ISA this tax year.
Like the Help to Buy ISA, the Lifetime ISA (LISA) gives a 25% bonus on top of what you save. The LISA is designed 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. This could mean a much bigger bonus. The bonus is also paid differently – with a Lifetime ISA it's paid monthly. However, 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 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 home.
- Use the LISA for the 25% bonus to buy a home and 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 Help to Buy ISA is more flexible, the Lifetime ISA will win for some as our table shows:
Max contribution? £4,000/year £2,400/year (£3,400 in year one) Lump sums? Yes No, need to save monthly Max bonus? £33,000 (assumes max contribution every year from age 18-49) £3,000 (assumes max contribution over four years and eight months) When's the bonus 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'll get a bigger bonus.
How do I transfer my Help to Buy ISA into a LISA?
You'll usually need to complete a transfer form after you've opened the LISA. It's worth getting in touch with the LISA provider you're transferring to so you know what to expect, what to do and when.
Note: Any money you transfer in will count towards your annual £4,000 LISA allowance. If you've more than £4,000 in your Help to Buy ISA, you'd need to do a partial transfer into your LISA.
- You can have 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.
This point isn't 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 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 2% for one year on up to £1,500. Open a Nationwide FlexDirect account and you get 2% AER fixed for a year on balances of up to £1,500 (0.25% AER variable after). You can also earn up to 2.02% with other top interest-paying bank accounts.
- Easy-access savings accounts pay up to 0.5%. These let you deposit larger sums and allow you to withdraw cash when you need it. Full info in Top Savings Accounts.
12. You can take the money out whenever you want, even if you're not buying a property – but you won't get the bonus
If you decide not to buy your first home (or to buy one costing more than the qualifying amount) you won't lose the money in your Help to Buy ISA. You can take cash out 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.
Top picks: Help to Buy ISAs for transfers
Since Help to Buy ISAs closed to new applicants last year, options have become more limited and rates have dropped. If you've already got a Help to Buy ISA, check the rate you're getting against the accounts below to see if you could earn more by switching providers.
It’s also worth considering transferring to a Lifetime ISA, which lets you save a much bigger amount and could mean a bigger bonus (see Help to Buy ISAs vs Lifetime ISAs).
Note: if you get a provider's Help to Buy ISA, you don't then need to get its mortgage (eg, if you have a Halifax Help to Buy ISA, you're NOT tied in to getting a Halifax mortgage).
|HSBC - existing custs only (1)||1.75% (2)
||Complete a transfer form and take it to a branch or post it.||Online/ phone/ post/ branch||Monthly|
|Newcastle BS - branch-only||1.64%||Visit a branch.||Phone/ branch||Monthly|
||Call Halifax to start transfer (see the Halifax website for more info).||Online/ phone/ branch||Annually|
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