Help to Buy ISAs

If you’re saving with a Help to Buy ISA, the government will contribute an additional 25% of your savings towards the mortgage deposit of your first home. If you missed the deadline to apply for one, find out why a Lifetime ISA might be the right choice for you.

If you’re saving with a Help to Buy ISA, the government will contribute an additional 25% of your savings towards the mortgage deposit of your first home. If you missed the deadline to apply for one, find out why a Lifetime ISA might be the right choice for you.

Anelda Knoesen
From the Money team
4
minute read
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Posted 10 FEBRUARY 2020

What is a Help to Buy ISA?

A Help to Buy ISA is a type of savings account that’s incentivised by the government to help first-time buyers save up a deposit to secure a mortgage.

As with other Cash ISAs, the money you save in a Help to Buy ISA and the interest you earn are tax-free. What makes the Help to Buy ISA special is that when you use it towards the mortgage deposit on your first home, the government will contribute an additional 25% of your total savings.

How do Help to Buy ISAs work?

When you use the money saved in your Help to Buy ISA towards the mortgage deposit on your first home, the government will contribute an additional 25% of your total savings.

The Help to Buy ISA scheme is now closed to new applicants, but formerly you could open a Help to Buy ISA with an initial deposit of £1,200. Each month you can deposit up to £200 into your ISA (£2,400 a year, not counting the initial deposit), up to a maximum total of £12,000. For every £200 you save, the government will contribute an additional £50. It will take over four years to reach the maximum contribution but, if you do, you can earn an extra £3,000 towards your deposit.

Because the ISA is connected to the first-time buyer and not the property, if you’re saving to buy your first home with a partner and they also have a Help to Buy ISA, you can use the savings from both towards your house purchase. And you could get up to an additional £6,000 from the government towards your deposit.

To qualify for the bonus, you have to meet certain conditions:

  • you need a minimum of £1,600 saved in your Help to Buy ISA
  • you’re a first-time buyer and you don’t own any other property, anywhere in the world
  • you’re buying a house valued under £250,000 (or £450,000 in London)
  • you intend to live in the home, not rent it out.

Your savings are not tied into a house purchase. You can withdraw money or close your ISA at any time, but you’ll only receive the bonus if you use your savings towards buying a new home.

How do I claim the bonus? Is it applied directly to my account?

You won’t see the bonus appear in your Help to Buy ISA like you would with interest, because you’re only eligible for it when you use the savings to buy your first home. When you’re ready to buy, you need to apply for the bonus through your solicitor – don’t withdraw your savings directly or you could lose your bonus.

Once you have an offer accepted on a house, follow the steps below to claim your Help to Buy bonus:

  1. Tell your ISA provider that you’re ready to buy and ask them to close your account. They’ll send you a closing letter.
  2. Give the closing letter from your ISA provider to your solicitor or conveyancer and ask them to apply for the government bonus.
  3. Your solicitor will receive the bonus and they’ll add the full amount to your deposit to complete the purchase.

Your mortgage provider will also take the bonus into account when calculating your mortgage loan amount. You don’t need to have a Help to Buy mortgage to use the bonus, but you can use the Help to Buy ISA bonus alongside the home equity loan offered by the government.

What if my house sale falls through? Can I reopen my Help to Buy ISA?

Buying a home is rarely straightforward, so it’s comforting to know that if your property purchase doesn’t go through, you have the right to reopen your Help to Buy ISA account.

To reopen the account, you’ll need to get a Purchase Failure Notice (PFN) from your solicitor or conveyancer to send to your ISA Provider. You need to send this within 12 months of the date you closed your Help to Buy ISA account.

Can I still open a Help to Buy ISA?

Unfortunately no, the deadline for new Help to Buy ISA applications closed on 30 November 2019. But if you already have a Help to Buy ISA open you can continue to pay into it until 30 November 2029. After that deadline passes you have a further 12 months to claim your bonus on a house purchase – up to 1 December 2030.

If you missed out on the deadline for opening a Help to Buy ISA, you could consider a Lifetime ISA instead. The Lifetime ISA (LISA) is a new type of incentivised savings account, designed to help people between the ages of 18-39 save up for their first home and for retirement.

What’s the difference between a Help to Buy ISA and a Lifetime ISA?

Like the Help to Buy ISA, the LISA also includes a 25% savings bonus from the government. You can save up to £4,000 a year until your 50th birthday, so you can reap even bigger rewards.  
 
If you save the maximum amount for the full life of the LISA, you end up with a bonus of up to £33,000. Plus, the bonuses are paid monthly so you can really watch your savings grow.  
 
You need to wait a year from opening your LISA if you want to use it to buy a home. You can either use it on a house purchase of up to £450,000 in a similar process to the Help to Buy ISA or, if you don’t need to use your LISA to buy a home, you can withdraw the money after your 60th birthday to help pay for your retirement. If you take the money out before then, you’ll have to pay a penalty for early withdrawal and you’ll lose your bonus.  
 
Even if you already have a Help to Buy ISA you can still open a LISA and pay into both in the same tax year, up to the current total ISA limit of £20,000 - but you’ll only be able to use one towards buying your first home.  
 
Read our guide to find out more about Lifetime ISAs.

Can I switch from one Help to Buy ISA provider to another?

Yes, if you find a better interest rate with another ISA provider you can switch, as long as your new ISA provider agrees to the transfer. Make sure you complete the transfer through the ISA provider; if you withdraw the money yourself, you’ll lose out on the government bonus.

Can I switch from a Help to Buy ISA to a Lifetime ISA?

Yes, you can transfer your savings into a Lifetime ISA but any money you move will count towards the annual deposit limit for the Lifetime ISA. Currently, this is £4,000 per year. If you do switch, you’ll lose the Help to Buy bonus but the savings you transfer will instead qualify for the LISA bonus.

For more information on the different ISA accounts available, read our guide.

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