Budget 2015: Help to Buy Isa to top up deposits by 25%

House and pounds

People saving to buy their first home will be given £50 for every £200 they save – up to a maximum bonus of £3,000 – with a newly announced 'Help to Buy Isa', the Chancellor has announced.

He has re-written the Individual Savings Account (Isa) rules once again, this time with the aim of helping prospective homebuyers get a foothold on the property ladder - the Help to Buy Isa reduces the amount they will need to save for a deposit.

Osborne announced that the Help to Buy Isa will boost property deposit savings by 25% up to £3,000 – meaning prospective first-time buyers need only save £12,000 in order to raise the average first-time buyer deposit of £15,000.

The smallest top-up the government will bestow is £400, which means the minimum amount a prospective homebuyer will need to save is £1,600. 

The new accounts will be available through banks and building societies from the autumn for a period of four years but once an account has been opened there's no limit on how long people can save up for.

An initial deposit of up to £1,000 can be made upon opening the Isa and up to £200 can be saved monthly.

The Treasury has confirmed that the accounts will be limited to one per person rather than one per home "so those buying together can both receive a bonus".

Account openers must be at least 16 years old and buyers must be purchasing UK properties worth up to £450,000 in London, and up to £250,000 elsewhere. Would-be buyers must also not have opened a cash Isa within the same tax year.

The Help To Buy Isa top-up will only be paid by voucher from the government to the mortgage lender upon purchase of a first-time buyer's home.

Mark Harris, chief executive of mortgage broker SPF Private Clients, says: "The Help to Buy Isa is a great idea. It encourages people to save, which is a far better way of tackling the issue of high house prices than increasing loan-to-values.

"Getting a big-enough deposit is a problem in London and the south-east but less of an issue in the rest of the country. The Help to Buy scheme has been a roaring success; boosting it further with the Help to Buy Isa will really assist first-time buyers and give them more of a chance of making their dream of home ownership a reality."

The Help to Buy Isa comes two years after the 2013 launch of the Help to Buy scheme, which has two parts. The first is a five-year, interest-free equity loan from the government for buyers of new-build properties worth up to £600,000 in England - provided they can raise a 5% deposit. This enables the borrower to benefit from lower mortgage rates as they only need to borrow 75% of the property value, instead of 95%.
At the end of the five years, the homeowner will start to be charged a fee of 1.75% of the equity loan, rising each year by the retail prices index measure of inflation   plus 1%.The equity loan must be repaid by the end of your mortgage term or when you sell it - depending on which comes first.
The second part is a mortgage guarantee. Banks offer mortgages up to 95% of the property's value for homes worth up to £600,000 across the UK. This means buyers will be able to put down a deposit of just 5%. The government will then guarantee up to 15% per cent of the property's value, giving the bank the same reassurance had the buyer put down a 20% deposit.

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My son has just got married and he and his new wife want to start saving to purchase a house together. They currently live in an apartment which my son owns and he has a mortgage in his name only.  Will my daughter in law be eligible to apply for a help to buy ISA as she has not previously owned a property but will be buying a house with my son who does have a property?  Any new property they buy will be in joint names.

Thanks for your question. The finer detail is not yet available as the banks and building societies are currently working out their product offering. Your son definitely won't be able to save within a Help to Buy Isa but your daughter-in-law might be able to do so, as long as she doesn't contribute to a cash Isa during the same tax year - the rule here will be 'one or the other'. If she is elibible, the minimum amount she would have to save to get the smallest top-up the government will pay of £400 is £1,600. And the maximum she would be allowed to save is £12,000. This is because the most the government will top-up deposit savings through the Help to Buy Isa is £3,000. Upon buying a home, the government gives the mortgage lender a voucher for its contribution. We'll let you know once a definitive answer becomes available. 

Is there a minimum period that we have to keep the money in our ISA before we can use it?

Am I right that it will take 4 years and 7 months of saving to be eligible for the maximum bonus of £3000, if the maximum initial deposit is £1000, and the maximum monthly deposit is £200? 

In reply to liamidz:

That's right - it won't be an overnight booster, unfortunately. But, of course, everything could change after the election so watch this space.


In reply to starkers8:

Because you can only open an account with an initial deposit of no more than £1,000, are only allowed to make contributions of £200 a month and the government minimum contribution is £400 (meaning a Help to Buy Isa saver must have at least £1,600 in the account), that means you would have to have your money in the Isa for at least four months - £1,000 in month one, £1,200 in month two, £1,400 in month three and £1,400 in month four.