The Help to Buy ISA: what you need to know

In November 2019, the Help to Buy ISA closed to new applicants, but you can continue saving into the account if you already have one. Here you’ll learn how the Help to Buy ISA works, who qualifies and how to claim the government bonus. We also consider some of the alternative ways to save for a mortgage deposit.

A Help to Buy ISA is a type of savings account specifically designed to help first-time buyers save for a mortgage deposit. They were introduced in December 2015 as part of a government plan to help more people get onto the property ladder. As with other types of ISAs, any interest you earn is tax-free. However, the Help to Buy ISA also gives you the chance to earn a 25% government bonus, worth up to £3,000.

Figures released by the Treasury show 410,075 property completions have been supported by the Help to Buy ISA since it was first launched, with an average bonus value of £1,073*.

In 2019, the Help to Buy ISA closed to new applicants, although if you’re an existing account holder you can continue to save into your account until 30 November 2029. You then have until 1 December 2030 to claim your government bonus.

You could make an initial deposit of £1,200 into a Help to Buy ISA, followed by monthly contributions of up to £200 thereafter. The government will then top up your contributions by 25% (up to a maximum of £3,000) when you buy your first home. 

Put simply, for every £200 you save in a Help to Buy ISA, the government will add another £50.

You will need to save a minimum of £1,600 to receive the government bonus. The maximum £3,000 bonus is based on a balance of £12,000. You can pay in more than £12,000 but you won’t receive a government top-up on any savings over this limit.

The table below shows how this works in practice.

Your Help to Buy ISA savings do not need to cover the entire mortgage deposit; you can make up the remainder with any money you have in other savings accounts. However, bear in mind that you can’t pay into a Help to Buy ISA and a cash ISA in the same tax year (unless it’s a ‘split ISA’).

Help to Buy ISAs were available to first-time buyers aged 16 or over. The accounts were limited to one per person, rather than one per home. This means two people buying their first property together can both make use of the scheme, resulting in a potential combined bonus of up to £6,000.

To qualify for the government bonus, you needed to meet the following conditions:

• You must be a UK resident* 
• You must be a first-time buyer – this is defined as someone who does not own, and has never owned, a home anywhere in the UK or the world
• The property must be in the UK 
• The property can have a purchase price of up to £250,000 or up to £450,000 in London (defined as inner and outer London boroughs)
• The property must be your only home
• The property must be where you intend on living (you can’t buy a home with the sole intention of renting it out)
• The property must be purchased with a residential mortgage (not a buy-to-let mortgage)

* Certain exemptions may apply to Crown Service employees working overseas.

You can use a Help to Buy ISA with any residential mortgage; you don’t need to have a Help to Buy equity loan. What’s more, your mortgage doesn’t need to be with the same provider as your Help to Buy ISA, so be sure to research the market to find the best deal.

Once you’re ready to buy a property, ask your bank to close your Help to Buy ISA. They’ll write a letter confirming the account is closed, which you’ll need to give to your solicitor or conveyancer. They will then use the letter to apply for the government bonus between the point of exchange and completion (don’t wait until after completion as it will be too late). Bear in mind that your solicitor can charge an administration fee of up to £50+VAT for completing the application.

The government bonus can’t be used for the exchange deposit or to cover any associated costs, such as conveyancing fees. It can only be used towards the deposit paid at completion. This prevents someone from claiming the bonus and then pulling out of the sale.

You must apply for your bonus within 12 months of closing your account. The latest date you can claim your bonus is 1 December 2030.

Yes, you can switch your Help to Buy ISA to another provider, assuming they accept the transfer. There are fewer Help to Buy ISAs on the market but it may still be worth comparing providers to see if you can find a better interest rate. 

If you want to transfer your Help to Buy ISA, you’ll need to ask your current provider to do this for you. Don’t withdraw the funds yourself as your money will lose its tax-free status and you won’t be eligible for the government bonus.

You can withdraw money from your Help to Buy ISA at any point but bear in mind that the government bonus is based on your closing balance (including interest). This means any money you take out before closing your Help to Buy ISA won’t be included in the final bonus calculation.

It’s also worth noting that the monthly deposit limit remains the same. So if you pay in the maximum amount of £200 at the start of the month and remove some or all of it a week later, you’ll need to wait until the following calendar month to make another contribution.

If you don’t already have a Help to Buy ISA, you might want to consider opening a Lifetime ISA. The Lifetime ISA is also designed to help people save for a first home (or retirement) and offers a 25% government bonus of up to £1,000 per year.

Anyone aged 18-39 can open a Lifetime ISA and save up to £4,000 per tax year into the account. To receive the bonus, you’ll need to purchase a property that costs £450,000 or less with any residential mortgage. Unlike the Help to Buy ISA, the bonus is paid monthly rather than on completion. However, you’ll need to wait 12 months after opening a Lifetime ISA before you can use the money to buy your first home.

If you’ve reached the monthly or yearly contribution limit for your Help to Buy ISA or Lifetime ISA, you may need to look at alternative savings accounts. You can find the best savings account for your needs and the most competitive interest rates, by comparing the different savings accounts available.

If you have some savings already, you may want to consider a long-term savings account such as a fixed rate bond. Fixed rate saving bonds allow you to lock a lump sum of money away for a set time, typically between six months and five years. They usually offer the most competitive interest rates of all account types and are ideal for long term savings goals. The compromise is that you can’t access your money during the term and, if you do, there may be significant financial penalties. A fixed rate savings account might therefore be a good option if you don’t intend to buy a property for several years.

Unlike ISAs, there’s no monthly or yearly cap on deposits into a fixed rate bond. It’s worth bearing in mind, however, that the interest on your savings in a fixed term bond is taxable, whereas ISAs are tax-free. That said, the personal savings allowance means 95% of savers won’t pay any tax on their interest. Read our article – Fixed rate bonds vs ISAs – for more information on the differences between the two types of accounts.

If you require more flexibility, a notice account may be a better option. A notice account lets you withdraw money when you give your savings provider a certain amount of notice, normally this is between 30 and 90 days. If you’re saving for a mortgage, you might not have advance notice of when you need to pay a deposit, so the flexibility to withdraw funds at short notice can be a big advantage.

While we don’t currently offer Help to Buy ISAs or Lifetime ISAs, you’ll find a great range of alternative savings accounts on the Raisin UK marketplace.

Simply register for a Raisin UK account to apply online for fixed rate bonds, notice accounts and easy access savings accounts from a range of UK partner banks. It only takes a few minutes and it’s completely free.

* HM Treasury Help to Buy: ISA Scheme Quarterly Statistics. Data from 1 December 2015 to 31 March 2021