The 1st December 2015 saw the introduction of the latest government incentive to help first time buyers get a foot on the property ladder. This came in the form of the Help to Buy ISA.
The Help to Buy ISA is designed to allow first-time buyers a bonus of 25% when the account holder buys their first property.
To be eligible, you must:
- be over 16
- have never owned property, or any interest in a property before
- must not open a Cash ISA in the same tax year
You are only allowed to open one Help to Buy ISA at any time.
The government will then pay a 25% bonus of the amount you have saved, up to a maximum of £12,000. Therefore, if you have saved £4,000, the government will pay you a bonus of £1000. For the maximum bonus amount (£3000), you must save £12,000. The account will allow you to save more than £12,000 but the maximum government bonus you will ever be able to receive is £3,000.
The bonus can be used on the purchase of any property worth up to £250,000 outside of London and £450,000 inside London. You must also be purchasing the property with a residential mortgage and not a buy-to-let mortgage.
As well as the government bonus, the Help to Buy ISAs currently on the market are offering attractive interests rates, some as high as 4% AER variable. The government bonus is calculated on the amount you have saved, and the interest accrued.
Most lenders have a strict payment structure in place where you can make an initial deposit of any amount from £1 to £1200, and then every month you may make a maximum payment of £200. You can miss a month, or pay a lower amount, but you will not be able to make up the difference in the following payment, the maximum will still be £200.
The minimum amount that must be saved for the government bonus to be paid out is £1600, which will pay out a government bonus of £400.
Help to Buy ISA accounts are available to open from the 1st December 2015 until December 2019. An account can pay a bonus from February 2016 onwards, and the Government states that it will pay out the bonus on these accounts until 2030.
The Help to Buy ISA can only be opened in one person’s name, so you are not able to open a joint account. However, the rules do allow for a couple to open account separately and use both bonuses on the joint purchase, allowing a possible maximum bonus of £6,000 between the couple.
During your purchase of a property, your conveyancer will apply for the government bonus on your behalf.
However, the danger lies in a change of future government, who may decide to change the rules and not pay the bonus.
If you would like more information about the Help to Buy ISAs and how they are accessed in the conveyancing process, please contact our conveyancing department on 01206 576151 or email: email@example.com.