Help to buy ISA
First-time buyer saving for a deposit? The purpose of the Help to Buy ISA, which launched in December 2015, is to offer you a helping hand.
For every £200 you save into the ISA, the Government will offer a bonus of £50. This bonus, along with interest you earn on your rolling balance, will be paid tax-free.
There are limits, of course, to this arrangement.
The maximum bonus available is set at £3,000, which would apply to savings of £12,000. It means first-time buyers saving for a deposit of up to £15,000 will be able to reach their target faster.
The maximum you can save into the ISA every month is capped at £200, although in the first month you can stash away £1,000 as an opening deposit.
Help to Buy ISA rules
With its cash 'giveaway', the Help to Buy ISA might seem too good to be true. But, as well as maximum Government bonus, there are other restrictions too.
First off, a Help to Buy ISA can only be opened by first-time buyers, who have never bought or inherited a home before, or even a part of one such as under a shared ownership scheme.
There is also a cap on the price of property the bonus can be used to buy. In London, this stands at £450,000, while outside the capital it's £250,000.
As well as a maximum bonus, there's also a minimum one. This stands at £400 per person which means savers need to put at least £1,600 into the account to qualify.
Buyers must also be at least aged 16 to open a Help to Buy ISA.
The main attraction of any ISA is that the interest (and, in this case, bonus) will be paid to you free of tax.
That's why HMRC only allows you to save into one ISA a year. However, if you are buying with a partner, you will be able to save double the allowance and get double the bonus.
The Help to Buy scheme still requires you to put down at least a 5% deposit on the home you are buying. On a £200,000 property for example, that's £10,000.
This deposit would be achievable by saving £8,000 in a Help to Buy ISA as the remainder would be topped up with the £2,000 bonus.
Using the bonus
The Help to Buy tax-free bonus is paid to you at the point you purchase your property. But bear in mind, this means completion, and not exchange.
In other words, you'll have to raise the initial deposit yourself, and use the Help to Buy ISA bonus to reduce your overall mortgage amount and subsequent monthly repayments.