First-time buyers who want to take advantage of thousands of pounds of government bonuses through the Help To Buy Isa have just three months to open an account
It’s said that buying a home is one of the most stressful milestones in your life – up there with getting married and having children. Questions loom large, ranging from affordability, where to buy and which mortgage to choose. And then there’s raising a deposit – possibly the hardest part of all.
The good news is the government is supporting first-time buyers through its Help to Buy (HTB) Isa scheme. The bad news is the clock is ticking to open one.
Our recent research also shows that one in three (36%) first time buyers don’t understand what a HTB Isa is.
With only a few months to go until the deadline, anyone who is thinking about buying their first home in the next five or even ten years should take a close look at the benefits.
What is a Help to Buy Isa?
The Help to Buy Isa is a savings product for any first-time buyer over the age of 16 who doesn’t already own a property. It offers 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.
In other words, for every £200 saved, the government will chip in with a cash contribution of £50. If you’re buying your home with someone else, who is also a first-time buyer, you can both open one and each receive a bonus towards the property.
How do they work?
In order to be eligible for the scheme, the first home must have a purchase price of up to £250,000 (or up to £450,000 in London), be where you’re planning to live and be the only home you own.
It’s important to remember to instruct your solicitor or conveyancer to apply for your government bonus as soon as your offer has been accepted. Don’t leave it until completion as this will be too late.
As you won’t receive the money until you’ve completed the purchase, the bonus can’t be used as part of your deposit. It will instead go directly to your mortgage lender via your solicitor.
Are there any other advantages?
As the account is an Isa, tax isn’t payable on any interest earned, and the effect of the Government’s 25% bonus beats even the top savings rates in the market.
There are plenty of providers which offer HTB Isas, meaning you can shop around, compare interest rates and get the best deal that works for you. What’s more, your cash isn’t locked away – you can access your savings, as well as the tax-free interest they’ve generated, whenever you like. If you do this before you buy a property, however, you won’t receive the government bonus.
Finally, for those looking to maximise their money, it’s worth remembering there is the option to open various Isas in one tax year with a Portfolio Isa. This spreads the £20,000 allowance across a range of products, including the HTB Isa. While Aldermore does have a portfolio option, it’s worth shopping around and looking at which would be the most suitable for you.
Despite these obvious benefits, many first-time buyers are not utilising the Help to Buy Isa product due to a lack of understanding. 61% of prospective first-time buyers who don’t currently save into a Help to Buy Isa say they would be more likely to save into one if they understood it better, According to our own research.
Encouragingly, after being explained the product and its benefits, over three quarters of prospective first-time buyers said they would use one to save for their first property.
When is the deadline?
New accounts can be opened until 30 November this year, contributions can be made until November 2029 and the cut-off date to claim the bonus is 1 December 2030.
Time is of the essence – act quickly in order to capitalise on thousands of pounds worth of Government funding towards your first home.
Ewan Edwards is head of savings at Aldermore.
Any views expressed in this article are Ewan’s and don’t necessarily reflect the views of Moneywise.