Help to Buy ISA: How does it work?
A Help to Buy ISA is a government scheme designed to help you save for a mortgage deposit to buy a home.
To qualify you must be classified as a first-time buyer and not own a property anywhere in the world.
Savings are tax-free just like with any ISA product, and a Help to Buy ISA gives you the added bonus of receiving government contributions too.
What's in this guide?
Eligibility for a Help to Buy ISA
- You need to be a first-time buyer.
- You must be aged 16 or over.
- It can be used to buy any home worth up to £250,000, or £450,000 in London.
- You can use a Help to Buy ISA with any mortgage; you’re not restricted to a Help to Buy mortgage.
- You can’t use a Help to Buy ISA if you’re going to rent out the property.
- You can’t use a Help to Buy ISA on an overseas property.
- You can’t have more than one Help to Buy ISA.
- You can’t open a Help to Buy ISA and a normal Cash ISA in the same tax year.
How it works
The government will top up any contributions you make by 25%, up to the contribution limit of £12,000.
So, for every £200 you save, the government will contribute £50. This means you can earn a maximum of £3,000 from the government.
The minimum amount you need to save to qualify for a government bonus is £1,600, which gives you a £400 bonus.
You can start off your ISA with an initial deposit of up to £1,000, which also qualifies for the 25% boost from the government.
Help to Buy ISAs are available to each first-time buyer, not each home. So, if you’re buying a property with your partner, for example, you’ll be able to get up to £6,000 towards your deposit.
Can you use your help to buy ISA for a deposit?
Yes, but you can’t put it towards your exchange deposit.
When you exchange contracts with the seller, they can ask you to pay an exchange deposit, also known as a holding or contract deposit. You can’t use your bonus towards this as the government only pays out the bonus once the property sale is completed.
However, you can use the bonus to reduce the size of your mortgage by adding it to your mortgage deposit.
Your lender receives the government bonus after your home purchase is completed, and the bonus will then be added to the mortgage deposit, which will reduce the size of your mortgage.
The lender might ask you to provide evidence of any money saved within your ISA when you apply for your mortgage. This is to help them work out how much you need to borrow.
For instance, if you save up £12,000 with a Help to Buy ISA, you are entitled to a £3,000 bonus, but you won’t be able to use this bonus as part of your initial exchange deposit.
Instead, the bonus will go towards the full cost of your home after the sale is completed. This means your outstanding mortgage will be reduced by £3,000.
How soon can you get the money?
Once your savings have reached the minimum amount of £1,600, you can claim your government bonus at any time.
If you want to qualify for the maximum bonus of £3,000, it will take just over four and a half years.
However, it’s worth noting that you need to claim your bonus through your solicitor or conveyancer before completion, but after exchange of contracts, which might be subject to a maximum fee of £50 plus VAT.
How does it work for couples?
As long as each of you is over 16 and both of you are first-time buyers, you can both have your own, separate Help to Buy ISA.
Does the property value allocation double as there are two people?
No, the limit of £250,000, or £450,000 in London, still applies.
If you have a cash ISA already, can you open a Help to Buy one?
You can only contribute to one cash ISA in a tax year, so you will need to wait until April 6 before you can make contributions to your existing cash ISA or open a new one.
More guides on Finder
How to buy Dogecoin (DOGE)
A beginner’s guide to buying and selling this decentralised, peer-to-peer cryptocurrency.
Getting a 5% deposit mortgage under the government’s new guarantee scheme
Learn more about the new government scheme that allows first-time buyers and home movers to get on the property ladder.
Commercial bridging loan
Everything you need to know about commercial bridging loans. We look at when they’re useful, how they work and what to be aware of before taking one out.
Hard money loans: Short-term finance in the UK
Learn everything you need to know about hard money loans – also known as bridging loans. Find out how they work, what they can be used for and their benefits and downsides.
100% bridging loans: How to get one
Read our in-depth guide to 100% bridging loans, including how bridging loans work, how to borrow 100% of the property’s value, how to get the best deal and the pros and cons.
Loans for small businesses affected by coronavirus
Learn about government support and alternative options for businesses needing finance to help deal with the impact of coronavirus.
Why it pays to be a patient investor
One way to develop healthy investing habits is to make regular contributions to your investment pot over a period of time, instead of investing a large lump sum. This is called “pound-cost averaging”. It’s a way of investing without trying to time the market.
Interactive Brokers review
Find out what we thought of Interactive Brokers, some key features, information about its platforms and how much Interactive Brokers costs.
Compare bridging loans to buy land
Find out if a bridging loan could be a good option versus other types of finance if you’re buying land.
Auction finance: Compare bridging loan rates
Everything you need to know about auction finance, including why it can be a good alternative to a mortgage, its downsides and where to get the best deal.
Ask an Expert