The launch of the help-to-buy ISA

The launch of the help-to-buy ISA

This week, a Help-to-Buy ISA was launched by various banks and building societies in an effort to help young first-time buyers onto the property ladder.

From December 1st, young buyers have been able to open this type of ISA, receiving a tax-free cash boost from the government of up to £6,000 for couples or £3,000 per person.

The tax-free accounts are for those saving for a deposit on a property, with the government adding 25% to the value of whatever is saved.

The new ISAs have now gone live, with 14 banks or building societies signed up to the initiative. Halifax, with a 4% interest rate, is leading the way with the best deal, while Nationwide, Santander, Natwest, HSBC and Lloyds Bank are all offering interest of 2%.

How does it work?

First-time buyers who use the ISA to put together a deposit for their first home will be given £50 for every £200 they save (£200 is the maximum that can be saved each month).

Buyers can also choose to open their account with a one-off lump payment of up to £1,000 on top of the monthly maximum. The bonus from the government on this initial deposit of £1,000 will be £250.

A total of £12,000 will need to be saved in the ISA before the maximum government bonus of £3,000 can be received. At the other end of the scale, the minimum government bonus is £400, which means that at least £1,600 will need to be saved into the ISA before this payout is received.

As long as you are 16 or over, a UK resident and buying your first property, you are eligible for the Help-to-Buy ISA. The other stipulations are that the home you are trying to be must be located in the UK (costing up to £450,000 in London and up to £250,000 outside the capital) and must not be a buy-to-let property. Furthermore, the property must also be mortgaged.

When it comes to buying your first property, your solicitor/conveyancer will apply for the government bonus on your behalf. This will then be added to the deposit. People putting money into the Help-to-Buy ISA who then change their mind about purchasing property will not receive the government bonus if they do not buy a home.

What do prospective homeowners think?    

Well, MoneySuperMarket has rather helpfully carried out some research on this. According to a study of over 2,000 UK adults, 63% of prospective homeowners aim to take advantage of the Help-to-Buy ISAs to get a foot on the property ladder. Some 33% of people who plan to buy in the next five years say they will definitely be using the tax-free account to help them save, while 30% said they probably will.

Meanwhile, 82% of those who plan to utilise the Help to Buy ISAs believe it will help them own a home sooner than they had previously planned.  Meanwhile, 19% believe it will help to get them on the ladder a year earlier than planned, and 34% said it will enable them to buy their property three months earlier than they thought, while 21% are of the opinion it will help them buy a home six months earlier.