Best Help To Buy ISA Rates

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Top Help to Buy ISA guides

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How does a Help To Buy ISA work?

The Help to buy ISA is a government sponsored product which aims to help people who want to save for a house. For every £1 you save in a Help to buy ISA the government will top your funds by 25p – this is a tax-free bonus. The most you can receive in total from the government is £3,000.

  • Choose your Help to buy ISA – There’s plenty of choice on offer from many banks and building societies. You can make an initial deposit of up to £1,200.
  • You can save up to £200 per month in a Help to buy ISA. You’ll need to have at least £1,600 in the ISA before you qualify for the 25% government bonus.
  • When you’re in the process of buying your first home your solicitor or conveyancer will apply for the government bonus you are due. This sum is added to the money in your account which, in turn, goes toward the money you are putting up for your first home. It’s important to note that the government bonus can’t be used for the deposit or to pay any fees such as legal costs.

It is important to note that Help to Buy ISAs will be withdrawn from sale on the 30 November 2019, but after this date those with existing Help to Buy ISAs will be able to pay into it until 30 November 2029, although they must claim the bonus by 1 December 2030.

Who is eligible to apply for a Help to buy ISA?

These loans are available to anyone who is:

  • Aged 16 or over
  • A UK resident
  • A first-time buyer who does not own any property anywhere in the world

In addition, you must also have a valid National Insurance (NI) number. Be aware that you may be prevented from opening a Help to buy ISA if you have opened a cash ISA in the same tax year.

How do I open a Help to Buy ISA?

Aside from having to be at least 16 and not yet a homeowner, there's nothing stopping you from opening a Help to Buy ISA, unless you've opened a cash ISA this tax year already. The process of opening one is the same as with any savings account; you can open the account by contacting the provider you want through any of the 'account opening' methods the ISA allows, and they'll tell you what to do from there. To make the most of it, you'll want to set £1,200 aside to place into the account straight away.

If you see a Help to Buy ISA that offers a better rate, it's possible to transfer your current funds over to it. Contact the provider you want to move to so they can set things in motion through the proper channels. Do not take the money out of your ISA and then put it into a new one yourself, as this would count as opening a new ISA and could even have tax implications.

There is one exception to the rule that says you can't open and contribute to a cash ISA and Help to Buy ISA in the same tax year, and that's when a provider offers a linked ISA range. However, the interest rates on these combined accounts can be lower than those on a regular Help to Buy account.

Furthermore, as you're able to transfer your cash out of a Help to Buy ISA at any time (if the specific account allows unlimited access) and put it into a cash ISA or non-ISA savings account (you'll just lose the Government bonus), there's no reason why you shouldn't just compare Help to Buy ISAs and try saving in the best one you can find.

Note that you will only be able to open a Help to Buy ISA until 30 November 2019, which is when the scheme closes. After this, you'll still be able to save into such an ISA and claim the Government bonus until 1 December 2030.

What are the restrictions?

There are of course some restrictions to this Government scheme. You will have to be at least 16, a UK resident and not own any property anywhere in the world to open an account. Then to get the Government bonus, the home you're buying needs to be in the UK, cost no more than £250,000 (£450,000 in London), be purchased with a mortgage and not be rented out (though you may be able to change your property to a buy-to-let investment later down the line).

If you've already opened a cash ISA in the current tax year (which runs from April to April), you'll only be able to transfer those funds, and even then only up to £1,200, into a Help to Buy ISA; you won't be able to open an additional active account. This is because you're only allowed to open one of each type of ISA per year, and Help to Buy ISAs are considered the same as cash ISAs (and largely follow the same rules).

If you've put more than £1,200 into the new cash ISA, the extra funds would need to be put into a stocks & shares ISA (as you are allowed to get both a Help to Buy and stocks & shares ISA in the same tax year), an innovative finance ISA, a stocks & shares lifetime ISA or a non-ISA account. ISAs you've opened in previous years do not count, though you won't be able to save more than your annual ISA allowance across all your ISAs. For the 2018/2019 and 2019/20 tax year, this allowance is £20,000.

Things to consider

There are certain things you cannot do with a Help to Buy ISA, such as buying a first home for the purposes of renting it out, using the Government bonus for any reason other than to buy a home and getting the bonus if you've already bought a house. It's important to be aware of the limitations surrounding Help to Buy, to make sure you can get the most out of it.

However, there's nothing stopping you from withdrawing your money out of a Help to Buy ISA if you decide not to buy a house. And the interest rates offered on these ISAs can rival or even beat their regular cash ISA counterparts. So, if you are eligible, why not give it a try?

Even if you're just half a year away from buying your first home, by saving the maximum you'd still be able to get a £550 Government bonus, plus any interest you manage to accumulate. And once you've saved up enough to get the maximum Government bonus, there's nothing stopping you from looking around to see if there's a better savings account out there wherein you can keep saving.

While having the Government bonus added only upon completion can make things a bit awkward during the exchange stage of buying your first home, it also means that it's harder to lose the bonus. If you've closed the account to buy your first property and the sale ends up falling through, you will be able to reopen your ISA and save the bonus for when you do successfully complete a house purchase. Note that your solicitor will need to fill in a purchase failure notification for you to show that your purchase did not complete, and that you can't use the funds to open a different account.

How to transfer a Help to buy ISA to a Lifetime ISA

Although you can have both a Help to buy ISA and a Lifetime ISA at the same time there’s no problem if you want to transfer a HTB ISA to a LISA (Lifetime ISA) although you will only get the bonus on one of them when you buy your first home.

However, you can only transfer up to £4,000 – your annual LISA limit – in every year. Money you’ve already paid into your LISA is counted toward this limit. For example, if you had already saved £1,500 in your LISA then you can only transfer in £2,500 from your Help to buy ISA.

Find out more about stocks & shares ISAsLifetime ISAs and cash ISAs, so you know which one is right for you.

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