Homebuyers looking to take out a Help to Buy (HTB) Isa will have to move quickly as they only have six months left before the scheme is withdrawn.
The government scheme, which offers bonuses of up to £3,000 to people saving for their first home, is set to close on 30 November.
Launched in 2015, HTB Isas give first-time buyers the opportunity to save up to £200 a month with the government topping up their contributions by 25%, up to a maximum of £3,000.
This means overall you could save up to £15,000. You can save up to £3,400 in the first year then £2,400 in subsequent years.
Couples can also combine their bonuses, giving them a potential boost of up to £6,000 towards a deposit for a first home.
Contributions can be made until November 2029, and the cut-off date to claim the bonus is 1 December 2030.
First-time buyers are confused about the HTB Isa and how it works, according to research from Aldermore Bank.
Over four-fifths (83%) don’t know what the minimum government bonus is, while 80% don’t know what the maximum is.
Ewan Edwards, head of savings, Aldermore says: “Buying that first property can seem like a pipedream for many people and the HTB Isa is an innovative product launched by the government to get them one step closer.
“It’s worrying that a large proportion of prospective first-time buyers are still unsure of what it is, how it works or the fact that the clock is ticking to open one.
"They could literally be missing out on thousands of pounds worth of government funding towards their first home.”
HTB Isa vs Lisa
Once the HTB Isa ends in November the only alternative will be the Lifetime Isa (Lisa).
The Lisa can be used by first-time buyers to fund a deposit for a property or taken tax-free at the age of 60.
The annual allowance is greater than the HTB Isa and you can save up to £4,000 a year – well above the £2,400 (£3,400 in the first year) for the HTB Isa.
Buyers also get a 25% bonus just like the HTB, but the bonus is also potentially bigger as you can save more for longer.
With the Lisa, you can get a bonus of £1,000 a year up until you are 50. By opening one at the age of 18 you could end up with a maximum bonus of £32,000 – far higher than HTB’s £3,000.
However, you won’t qualify for a bonus until a year after opening the account.
Plus, if you take your money out before you are 60 and you don’t use it to buy a home, you will have to pay a 25% penalty on the whole amount, that is 25% of what you’ve saved plus the government bonus.
For instance, if you save £1,000 and get a £200 bonus, then withdraw it, the penalty will be charged at 25% of £1,200. This means you will only get back £900.
Laura Suter, personal finance analyst at investment platform AJ Bell, says: “We’re now just six months away from the end of the Help to Buy ISA – after 30th November this year no-one can open a new account.
!It’s been replaced by the Lisa, but so far the number of providers offering the newest ISA has been disappointingly small.
“There are just three cash Lisa offerings for savers to choose from, compared to 27 HTB Isa providers. What’s more this lack of competition is hitting savers’ pockets, as the top HTB Isa interest rate is 3%, compared to the top Lisa that pays 1.1%.”