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10 top tips to help you understand the new Help to Buy ISA

If you’re a first time buyer, or if you have relatives or friends who want to get onto the property ladder, you need to know about the new Help to Buy ISA.

From 1st December this year, Help to Buy ISAs will be offered by Barclays, Lloyds, NatWest, Santander and Virgin Money. Once you’ve opened one, you’ll be able to save up to £200 each calendar month, which the government will top up by 25% (to an upper limit of £3,000).

Better still, you can put away £1,200 in the first month, giving you an immediate £300 boost to your savings. The interest you earn on your account will also count towards your government bonus.

It’s hoped the new scheme will help many more people into home ownership, but before you open one of these ISAs it’s worth knowing more about the rules and restrictions. To help you, we’ve covered some of the most important ones below.

  1. Your bonus has to be put towards a deposit
  2. The extra money you get from the government can only be claimed when you are actually buying a home. So don’t budget to use it for solicitor’s or estate agent’s fees – you’re not allowed.

  3. You must tell your bank or building society when you are close to completing your home purchase
  4. You must ask your ISA provider to close your Help to Buy ISA – don’t simply withdraw your money or you will not get your bonus. Get a closing letter from your bank or building society and give it to your solicitor or conveyance – they will use it to apply for your government bonus on your behalf. Also, be sure to claim your bonus within 12 months of closing your account, or you will not get the extra money.

  5. You MUST be a first time buyer
  6. Even if you currently rent, if you have owned a house in the past you are not entitled to take advantage of these scheme. Also remember that if you have owned property abroad, you cannot open a Help to Buy ISA.

  7. You’ve got four years to open a Help to Buy ISA
  8. These products will be available from 1st December 2015 to December 2019. However, once you have opened the account you can pay into it as long as you like – even after 2019.

  9. You can transfer money between Help to Buy ISAs
  10. This is helpful if you find a provider who offers a better interest rate. But you can only hold one Help to Buy ISA at a time, so you can’t spread your savings across a number of them.

  11. There’s a restriction on the price of the property you buy
  12. If you buy within Greater London, you will only receive a government bonus towards a property worth £450,000 or less. Outside the capital the limit is £250,000, but in both cases you can buy an existing or a new-build home.

  13. You can only claim your bonus when it reaches at least £400
  14. The maximum bonus you will get is £3,000 on £12,000 of savings. However, once you’ve earned a bonus of at least £400, you can close your account.

  15. You can’t open a Cash ISA at the same time
  16. You have to choose one or the other in any tax year. However, you can open a Help to Buy ISA if you have Cash ISAs from previous years or you are only contributing to a Stocks and Shares ISA.

  17. Both you and your partner can open Help to Buy ISAs
  18. This is good news because, if you’re buying a property together, you potentially get twice the bonus – assuming you both save the maximum or the same amounts.

  19. You can’t carry over shortfalls

If you don’t invest the maximum £200 in one month, you can’t carry over the shortfall to the next month. So save as near to the maximum as you can each month for the best bonus.

Help to Buy ISAs will give you much better returns than Cash ISAs, but you will only get the bonus if you then buy your first home. If you’re in any doubt that you’ll save enough for a deposit, you may want to look at investing in a Cash ISA instead. If you have any queries about how a Help to Buy ISA affects your accounts or your tax liabilities, please talk to a member of the THP team. Happy house hunting!

Photo: Wikipedia

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