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Help to buy pro's & con's
Help to Buy ISAs are designed to help give first-time buyers a boost to reach the first rung of the property ladder. But are they worth it? Check out our pros and cons.
The Help to Buy ISA, is a tax-free savings account designed to help first-time buyers get onto the property ladder.
You can save up to £200 a month into the account and receive interest tax-free. In the first month, you can save an additional £1,000.
When you come to use the account to buy a home, the Government will top it up with a tax-free 25% bonus. As this bonus is capped at £3,000, it puts the maximum amount you can earn tax-free in the account at £12,000.
Interested? Here's some chief pros and cons of the account;
- Its tax-free: you dont pay income tax on the interest you earn up to £12,000 tax-free.
- The Government adds a 25% bonus: the effects of this outstrips even the very top savings rates on the market.
- You can start saving from 16: like Junior ISAs (JISAs), these accounts are available to anyone aged 16 or over. You just need to be a first-time buyer who has never owned their home (or even part of one).
- Each individual gets their own account: so if youre buying as a couple, you'll be able to save £24,000 in a Help to Buy ISA and get a maximum bonus of £6,000 to boot.
- There is no time limit to how long you can save for: once a Help to Buy ISA is open, you can carry on paying in money indefinitely. Plus, there's no deadline by which you can claim your Government bonus.
- It's available on all types of property: the Help to Buy ISA can be used to buy a new-build home or an older re-sale one. However, it must be in the UK and bought for you to live in.
- You can take your pick of providers: high street banks that offer the Help to Buy ISA include Barclays, Lloyds Banking Group, Nationwide, NatWest, Santander and Virgin Money. Interest rates vary so make sure you compare deals
- You can switch your Help to Buy ISA between providers: if your interest rate is not competitive, you can switch to a better one. Just make sure you carry out an official ISA transfer, else your savings will lose their tax-free status.
- You can still hold ISAs from previous years: they can sit alongside your Help to Buy ISA. However, you can only pay into one cash and one stocks and shares ISA in any one tax year.
- You can withdraw your cash at any time: and you'll still receive your savings with the tax-free interest due. You'll simply miss out on the Governments bonus.
- You can combine it with other first-time buyer property initiatives: such as the Governments Help to Buy equity loan scheme.
- You cannot put the cash bonus towards your deposit: the all-important tax-free bonus is only paid at the point of completion. It means that you'll have to raise the initial deposit (payable at exchange) yourself, and use the Help to Buy ISA bonus to reduce your overall mortgage amount and subsequent monthly repayments
- The Help to Buy ISA won't help if you live in an expensive area: there is a cap on the value of property purchases of £450,000
- You can't invest it in stocks and shares: unlike the Lifetime ISA, which is available as a cash ISA or stocks and shares ISA, the Help to Buy ISA is just available as cash. You can only pay into one cash ISA and one stocks and shares ISA in any tax year.
- There is a limit on monthly contributions: you can pay up to £1,200 into the account in the first month, made up of a one-off opening deposit of £1,000 and a monthly deposit of £200. But you are limited to saving up to £200 a month thereafter. This means it will take a minimum of four-and-a-half years to claim the maximum Government bonus of £3,000.
- The amount you can save is less than a regular ISA: you can only save £2,400 each tax year (as well as the initial £1,000 deposit) in a Help to Buy ISA, while you can pay up to £15,240 into a regular cash ISA in the current tax year (2016/17), rising to £20,000 (2017/18)
Note also that if you're a basic rate taxpayer, the Personal Savings Allowance means you can earn up £1,000 in interest on cash in a standard savings account without paying tax. Higher rate taxpayers can earn £500.
- Transfers in from your existing ISAs will be limited: you can make a 'transfer in' from an existing ISA into a Help to Buy ISA, but this only works if the balance being transferred is £1,200 or less, as that's the maximum you can open the account with.
- It doesn't guarantee you'll secure a mortgage: since the introduction of the Mortgage Market Review in April 2014, lenders have been much more rigorous with applicants' affordability.
- You cannot open a Help to Buy ISA if you've already been on the property ladder: even if you don't own a property now, you cannot open one of these accounts if you previously owned your home, or even a part of one.
- A minimum savings balance is required before ANY bonus is paid: you need to save at least £1,600 for the Government bonus to kick in which, in this case, will amount to £400.
- You won't receive interest on the Governments bonus: and your solicitor will need to apply for the bonus on your behalf.
For any further information please contact Richard Zammutt on 01625 410 950.