First time buyer? Saving for a mortgage deposit? A Help to Buy ISA might be the way forward.
If you’re struggling to save a deposit to buy a house, you’re not alone. The average house price in the UK, reported by the Land Registry in February 2016, is around £190,000. To buy a property worth £190,000, you would need to save at least £9,500 for the minimum 5% deposit required by mortgage lenders. This is by far one of the biggest hurdles when trying to get on the property ladder. For a wider choice of lenders, you would need a 10% deposit, or 25% to be eligible for the more competitive rates. If you’re a first time buyer, Martin Lewis, Money Saving Expert, says a Help to Buy ISA is a ‘no brainer’ as the government will give you 25% free cash on top of what you save, which could amount to thousands of pounds.
How does it work?
The Help to Buy scheme launched in December 2015. Quite simply, if you save money into a Help to Buy ISA, the government will boost your savings by 25%, up to a maximum contribution of £3,000. When you use the ISA to buy your first home, all the money you have put in to it (plus the interest accumulated) will have 25% added to it, boosting the deposit you can put down for your first home.
The minimum saving to be eligible for the bonus is £1,600. You will need to put £1,200 in the account on your first month, then up to £200 a month thereafter. The following table shows the government contribution against your savings.
The bonus is paid when you come to buy your property. Your solicitor will arrange for the money to be paid directly to your mortgage lender, as part of your deposit.
- Better interest rates than a cash ISA.
- Government will add 25% bonus to your savings when you purchase a property.
- If you start putting money aside now in a Help to Buy ISA, the government have said the bonus will still be available up until 2030.
- If you decide not to use the money to purchase a property, you can take the cash out and benefit from the interest, you just won’t receive the 25% bonus.
Who is eligible?
- First time buyers saving for a mortgage deposit.
- UK residents, aged 16 or over with valid National Insurance number.
- Accounts are limited to one per person rather than one per home – so those buying together can both receive a bonus (providing both first time buyers).
To qualify for the bonus, your property must be in the UK and cost up to £250,000 (or up to £450,000 if you are buying in London).
So, if you’re a first time buyer looking to buy a house now or in the future, it’s worth looking into a Help to Buy ISA and start saving now. The Help to Buy ISA is available from a range of Banks and Building Societies. It’s never too early to start saving.
Watch video by Martin Lewis, Money Saving Expert
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Help to Buy – How does it work? (HM Government)
Help to Buy ISA (HM Treasury)
Help to Buy Isas – How they work (Moneywise, March 2016)
Help to Buy ISAs (Money Saving Expert, April 2016)
Land Registry House Price Index (February 2016)