Pros of the Help to Buy Isa:
- Tax-free interest
Because the account is an ISA, you will not pay ANY tax on the interest you earn (this is not subject to income tax).
- The Government’s 25% bonus
This beats your typical top ‘saving rates’ on the market. The minimum you must have in the account to achieve a bonus is £1,600 where you will be entitled to a £400 bonus. The maximum bonus you can receive is £3,000 when you have saved £12,000.
- Keep saving for as long as you like
Once you’ve opened the account, you can pay indefinitely until November 2029. You can claim your bonus by December 2030 – although this could be changed under a different Government. You don’t have to pay in every month, but you cannot ‘roll over’ your allowance. You can also pay in more than once a month, if the you don’t pay in more than £200 per month.
- Access to your cash
You can access your cash at any time, but you only gain access to the Government bonus when you buy your house.
- You can have one account each
If you are in a relationship, and planning buying your first home together, you can combine your bonus. This means you can get up to £6,000!! So, if you both saved £12,000 plus the £6,000 Government bonus, you would have £30,000 for a property!
- Use it on any kind of property
It doesn’t matter if you buy a new-build, shared ownership or an apartment for example. As long as the property is in the UK and under £250,000 (£450,000 for London) you can use the help to buy ISA.
- Plenty of providers
There are plenty of providers, such as Barclays, Nationwide, Santander. Compare each one, to find the one that is most suited to you.
- Free to switch
No worries if you find a better deal later down the line. Just carry out an official ISA transfer and you can retain the tax-free status on your cash.
- Don’t have to dump previous years’ ISAs
You can keep your cash in another ISA. However, in one single tax year, you can only pay into one ISA. This doesn’t mean that you must get rid of your other ISA, as it can sit dormant.
- Can be combined with other first-time buyer schemes
Cons of Help to Buy Isa:
- Saving can be slow
In one single month, the maximum you can deposit into the ISA is capped at £200. This means to claim the maximum Government bonus of £3,000, it would take you 4.5years!
- For first time buyers only
You can never have owned your own home. Even if you have inherited a property, you would not be eligible.
- Minimum savings to get a bonus
In order to receive the minimum Government bonus of £400, you would have to have a minimum deposit of £1,600.
- No interest paid on the Government bonus
Whatever bonus you get from the Government, there will be no interest paid. You will just get the flat 25%.
- Price cap on Property Value
If you purchase a home using the Help to Buy ISA, the home must cost less than £250,000 (£450,000 in London) and be brought with a mortgage.
If you only purchase a share of the property, you can use the ISA, but the whole house value must be less than the threshold.
- Bonus will be paid to your solicitor
Just before completion, the Government bonus will be paid to your solicitor/property conveyancer. They need to apply for it on your behalf, but they are more than likely to charge £350 (plus VAT) to make the application.
- You can’t put the Government bonus towards your initial deposit.
This is so you can’t pull out of the transaction but keep the bonus. Once the purchase is completed the Government bonus will be paid. Your solicitor should explain this to the seller so you wouldn’t have to worry about this.
- Not available with stocks and shares
The Help to Buy ISA, is available only as cash. Unlike the Lifetime ISA, which also pays a Government bonus.
- Time Limit
You can only open a Help to Buy ISA until December 2019.
- Transfers in from existing ISAs are limited.
You can transfer from an existing ISA, but you can only transfer no more than £1,200 as this is the maximum you can open the account with.