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A guide to Help To Buy ISAs

Esther Shaw / 11 December 2015 ( 07 December 2016 )

What is a Help to Buy ISA? Who is eligible? Could they help your children on to the property ladder?

Image of a heart on a paper house to represent buying your first home.
What can you do as a parent – or grandparent – to bring your loved ones’ dreams of home ownership a step closer to reality?

First time buyers are being given a helping hand on to the housing ladder following the launch of the Government’s Help to Buy ISAs.

These tax-free individual savings accounts (ISAs), which became available on December 1, 2015 are only available to first timers looking to amass enough cash for a deposit; they are designed to give their finances a lift.

This is part of the Government’s long-term plan to support people who want to work hard and save up to buy their own home. The initiative was announced by then-Chancellor George Osborne in 2015's Budget.

But how do Help to Buy ISAs work? And what can you do as a parent – or grandparent – to bring your loved ones’ dreams of home ownership a step closer to reality?

Will your children get taxed on the money you give them?

How do the new Help to Buy ISAs work?

Your son, daughter or grandchild can slot money into their Help to Buy ISA, with the option of paying in an initial one-off lump sum of £1,200 to get the account started.

As a parent or grandparent, you could help with this initial sum, or you could offer to top up their savings on a more ongoing basis, up to the maximum £200 which can be saved each month.

Under the Help to Buy ISA scheme, the Government will then add to the money squirrelled away with a bonus of up to 25% – meaning £50 for every £200 saved. This is paid on top of the money saved and the interest earned.

A minimum of £1,600 needs to be built up within the ISA to qualify for the minimum Government contribution of £400.

Equally, if the first time buyer manages to save £200 a month for five years – giving a total of £12,000 – they will receive the maximum £3,000 bonus from the Government.

This money is received at the point of purchase.

Read our complete guide to giving money to children

Couples can cash in

As the scheme allows one ISA per individual – and not per home – couples can double up their allowance.

This means that if your son, daughter or grandchild is married, or buying with a partner or friend, they could potentially claim £6,000 from the Government.

To receive the 25% subsidy, the home that is being bought must not cost more than £250,000, except in London, where the cap is £450,000.

What you need to know about signing property over to your children

Savers can switch provider

While your son, daughter or grandchild can only open one Help to Buy ISA, they don’t have to stick with the same provider throughout the lifetime of the scheme, and can switch between firms to ensure they are getting the best rate they possibly can on their money.

Keep control of your finances, save money and avoid getting ripped off with Saga's extensive range of money articles.

Check out provider’s Ts and Cs

It’s also worth noting that while some providers will allow a first time buyer to have a Help to Buy ISA and one of its cash ISAs at the same time, others will not. This means the first timer could lose the rest of their ISA allowance each tax year.

Choosing a lender

When your son, daughter or grandchild comes to buy their first home and needs to get a mortgage, it is important to remind them that they are not obliged to go to the provider they have held their Help to Buy ISA with. They can go to any lender, and should shop around carefully to find the best mortgage rates they can find.

Want to give money to a child under 18? Find out about the tax implications here.

Length of the scheme

The scheme will be closed to new entrants from November 2019, and the bonus must be claimed by purchasing a house by December 1, 2030.

Claiming the bonus

The bonus will not appear in your son, daughter or grandchild’s account. Instead, their solicitor will claim the bonus directly from the Government at the point of house purchase.

If the first timer doesn’t buy a house, they still get their money plus interest, but don’t get the bonus.

Read Paul Lewis' guide to giving money as a gift

What are the concerns?

There are worries that soaring house prices could mean the scheme won’t go far enough to help young buyers in several areas of the UK, as the minimum deposit requirements could soon exceed the maximum that can be saved in these accounts.

The deposit currently required by the average first-time buyer is around £36,000, so most will need more than a Help to Buy ISA to get onto the bottom rung of the property ladder.

Take advantage of the free money on offer

That said, the important thing to remember is that free money is up for grabs from the Government – and competitive rates are on offer. With this in mind, anyone who is aspiring to buy their first home should think about getting a Help to Buy ISA.

After all, a bonus of £3,000 could be a substantial chunk towards a first home, and could effectively pay the entirety of stamp duty or legal fees.

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The opinions expressed are those of the author and are not held by Saga unless specifically stated. The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.