Help to Buy ISAs – A Summary of the Main Features
In just one week’s time, on 1 December 2015, Help to Buy ISAs will finally be made available to the public. In this article we provide a summary of the product’s main features. This will be of interest to those who are studying for any of the CII R01, R02, R06 or CF6 exams.
The Government will top up savings in a Help to Buy ISA by up to 25% in the form of a £50 bonus paid for every £200 saved.
The minimum amount that needs to be saved to qualify for a bonus is £1,600. This would give a bonus of £400.
The maximum amount that can be saved overall is £12,000. This would give a bonus of £3,000.
Savers can start off their Help to Buy ISA with an initial deposit of up to £1,000. There is no minimum monthly payment, but the maximum monthly payment is £200.
Whilst these new accounts will be available for only 4 years, once an account has been opened there is no time limit on how long the holder can save for, nor on how quickly they have to use the proceeds to buy a property in order to get their bonus.
The Help to Buy ISA is for first time buyers aged 16 or over. Those who either currently own or have previously owned a residential property are not eligible.
Just like other types of ISA, the Help to Buy ISA is an individual contract – joint accounts are not allowed. However, if two people are buying a property together and both meet the eligibility criteria, they will each be able to take out a Help to Buy ISA and use the proceeds of both ISAs towards the purchase price of the one property.
As you’d expect, there are a number of restrictions regarding the Help to Buy ISA.
The first is that a saver can only have one Help to Buy ISA at any one time. They can, however transfer their Help to Buy ISA to another provider if they so wish. A saver might wish to transfer to take advantage of a higher interest rate or to gain access to a preferential mortgage deal that is tied in to a provider’s Help to Buy ISA. You should also note that a saver cannot have both a Help to Buy ISA and a Cash ISA open at the same time.
The money from a Help to Buy ISA can be withdrawn at any time. These funds can be replaced but this is subject to the maximum monthly contribution of £200.
The bonus goes directly to the mortgage lender when the property is purchased. It therefore earns no interest and only becomes payable when the saver buys an eligible property.
An eligible property is one that is not going to be rented out and is not situated overseas.
It must be worth no more than £250,000 if located outside of London and no more than £450,000 if it is located in London.
Is it a good deal?
Help to Buy ISAs have received a unanimous welcome in the media. The interest paid is, of course, tax free. On top of this the saver can potentially receive up to £3,000 from the Government. If the saver’s circumstances change they can simply close down their Help to Buy ISA and take any interest owed. They will, however, have to forgo their bonus. Given the relatively low contribution limit there is an expectation that providers will offer generous rates in a bid to attract customers who they hope, in the long term, will then take out a mortgage product with them.
At the time of writing (19th November 2015) none of the providers had released any details of their Help to Buy ISAs – these will be out very shortly and, no doubt, there will be a great deal of media interest and, as a result, a high level of take up.
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Over to You…
So do you think that the Help to Buy ISAs will be a real boost for first time buyers?