Help to Buy ISA Pros and Cons
A review of the Help to Buy ISA and the UK's best providers.
If you’re a first-time buyer, a Help to Buy ISA could mean thousands of pounds in a free cash bonus and a high tax-free interest rate of up to 2.58%, but time is running out.
The Help to buy ISA deadline has passed for new customers, but for those considering a transfer to a Lifetime ISA, it’s important that you know exactly what it offers, the pros and cons, and what banks offer the best interest rates.
Help to Buy ISA explained
First, let us briefly explain the Help to Buy scheme and what it entails.
You begin by opening an account with your chosen Help to Buy ISA provider and deposit a lump sum of up to £1,200.
Then, you save up to £200 each month, earning tax-free interest of around 2.5% with the best banks and building societies, until you are ready to put a deposit down on your first home.
Here’s the best part – when you buy a home, the government will add 25% to whatever you have in your Help to Buy ISA as a free bonus, as long as you have saved between £1,600 and £12,000.
The maximum government bonus for an individual is £3,000, but if you’re saving with a partner, you can both open an account and get up to £6,000 between you towards your first home.
Help to Buy ISA benefits
You get a government bonus of 25% on all your savings. This free bonus from the government is a welcome boost to your budget and could provide you with up to £3,000 per person towards your first home.
High interest rates (tax-free). The top-paying Help to Buy ISA offers an interest rate of 2.58%, which is considerably higher than most other savings accounts on the market.
Plenty of time for saving. Although the deadline to open an account is the 30th of November 2019, anyone that opens an account before that date can pay in to their Help to Buy ISA until November 2029. You have until December 2030 to claim the government bonus.
You can open one account each. So, if you’re buying a first home as a couple, your combined government bonus could reach £6,000.
Access your cash early. If you need to access your savings early, you can do. You will receive the cash you’ve saved – plus the accrued tax-free interest – but you won’t get the government bonus if you aren’t using it to buy a home.
All property types are eligible. You can use the Help to Buy ISA towards a new-build or a resale home, and you aren’t required to go through your local housing association.
Countless providers available. You can take your pick from a wide range of Help to Buy providers, from the likes of Barclays, Lloyds, Nationwide, NatWest and Santander.
Disadvantages of the Help to Buy scheme and ISA
The Help to Buy ISA deadline is approaching. You won’t be able to open an account from the 30th of November 2019, so you need to make a decision sooner rather than later.
Savings are restricted. You can make an initial deposit of up to £1,200 but only £200 per month thereafter, which means it would take a minimum of four and a half years to get the maximum bonus of £3,000.
First-time buyers only. If you’re not a first-time buyer – that is, you must never have owned a home or a share of a home – you aren’t eligible for the Help to Buy ISA.
Minimum needed to qualify for government bonus. You must have saved at least £1,600 in your Help to Buy ISA to qualify for the 25% government bonus.
Price cap on the property’s value. In order to claim the government bonus, the home you’re buying must be valued at less than £250,000 (or £450,000 in London).
Bonus cannot go towards deposit. The government bonus is paid directly to your solicitor or property conveyancer on completion to avoid people pulling out of the purchase once they’ve received the bonus. You can use your savings (including interest) towards a deposit, but the bonus is only released on completion. There is also a chance that your solicitor could charge a £50 admin fee.
As we mentioned, there are plenty of Help to Buy ISA providers to choose from in the UK, including…
Barclays Help to Buy ISA
The Barclays Help to Buy ISA is the top-paying product on the market at the moment, with some of its outstanding benefits including:
It has the best Help to Buy ISA interest rate at 2.58%
Accounts can be opened with just £1
Interest is paid monthly
There are some potential drawbacks or disadvantages, such as:
You only get online access if you have another Barclays product
You must go to a branch to apply unless you’re an existing customer
Nationwide Help to Buy ISA
Nationwide is also one of the top banks for Help to Buy ISAs, with many customers choosing it as their provider due to the following benefits:
High interest rate of 2.5%
Offers a split ISA*
All customers have online access, unlike Barclays
*A split ISA means that account holders can pay into a cash ISA and Help to Buy ISA in the same tax year.
Of course, there are some potential drawbacks, including the fact that interest is paid on the account anniversary, rather than monthly (which might suit some people, but not others).
NatWest Help to Buy ISA
The NatWest Help to Buy ISA is very similar to that offered by Nationwide, but there are some slight differences that could suit you, depending on your personal situation.
The benefits of a NatWest Help to Buy ISA include:
High interest rate of 2.5%
Offers a split ISA
Interest is paid monthly
All customers get online access
Some may prefer their interest to be paid annually, in which case a Nationwide Help to Buy ISA may be more appealing.
If you aren’t sold on the Help to Buy ISA, read our full guide to UK savings accounts for more information on the other options available to you.
At Compare UK Quotes, we are strong advocates of the Help to Buy ISA, and any first-time buyer that can afford to put a bit of cash away each month will undoubtedly benefit from the scheme. Even if you can’t afford to deposit the maximum £200 a month, any amount that you save – as long as you surpass £1,600 – will generate a fair bit of interest and, of course, the 25% government bonus will be added.
If you haven’t already then go out and open a Help to Buy ISA – you can open one with as little as £1 and, even if you can’t afford to save now, you’ve got until 2029 to earn your bonus.