Mortgages with Help to Buy: ISA
How to get a mortgage using a Help to Buy: ISA
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Getting a Help to Buy ISA for your first mortgage
*The Help to Buy: ISA scheme closed to new applicants after 30th November 2019. For the most up-to-date information about Help to Buy: ISAs and the alternatives available, read our guide.
This article will cover the following:
- What is a Help to Buy: ISA and how does it work?
- Who’s eligible for a Help to Buy: ISA?
- Help to Buy: ISA rules
- How to open a Help to Buy: ISA
- A Help to Buy: ISA FAQ
What is the Help to Buy: ISA scheme and how does it work?
A Help to Buy: ISA (sometimes referred to as a ‘first-time buyers ISA’ or a ‘H2B ISA’) is a type of savings product designed to help buyers put down a deposit on their first home.
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A ‘Help to Buy: ISA’ is not a ‘Help to Buy mortgage’
A Help to Buy: ISA is not the same as a Help to Buy mortgage, which is a term to describe a number of government supported mortgage schemes. You can use a Help to Buy: ISA with any kind of mortgage – you’re not restricted to using it with a Help to Buy mortgage.
Who’s eligible for a Help to Buy: ISA?
It’s an ISA for first-time buyers only, so you’ll need to be a first-time homebuyer. The definition of a first time buyer is someone who has never owned a property (wholly or in part), in the UK or overseas. Some lenders will have different definitions of a first time buyer, so be careful with this! i.e. some will consider those who don’t own a property as FTBs, others if they have not owned one for 3 years, some 6. The definition that matters for H2B ISAs is the government, which is that you can never have owned a property.
How does a Help to Buy: ISA differ from a ‘regular’ ISA?
A Help to Buy: ISA is similar to any other ISA – the funds you put into the ISA are exempt from capital gains tax and income tax, and the interest you earn on the account is tax free. There are a few differences, however:
There are monthly saving limits
A maximum of £200 can be saved into your Help to Buy: ISA every month, plus an initial £1,000 deposit.
The government will give you 25% extra towards your house deposit
The ultimate goal of a Help to Buy: ISA is to close it, using the balance as a house deposit. With this in mind, the government will add 25%, tax free, to the final balance of the Help to Buy: ISA, once you close the account. You need to instruct your conveyancer or solicitor to apply for the bonus as soon as your offer has been accepted. If you wait until completion, it’ll be too late.
There’s a minimum and maximum balance to qualify for the government bonus
The minimum balance of your account to qualify for the bonus on closing is £1,600, and the maximum is £12,000. You can, of course, save more than £12,000 in your Help to Buy: ISA, but you’ll only get the government bonus on a balance up to £12,000.
For example: if you save £6,000 in your Help to Buy: ISA, and use these funds in your deposit, you’ll be able to deposit a total of £7,500 – £6,000 of your savings, plus the government’s 25% bonus, bringing it to a total of £1,500.
Second example: if you’re in a couple, and both of you save £14,000 each – the government will give each of you an extra £3000 towards the purchase of your first home – £6,000 in total on top of the £28,000 you both put in. Remember: the bonus only applies to the first £12,000.
What other criteria do I need to fulfill to get the 25% bonus?
- The property has to be in the UK.
- The value of the property must not exceed £250,000 (£450,000 in London).
- The property must be purchased as your primary residence: not a second home and not a buy-to-let.
How can I open a Help to Buy: ISA?
Unfortunately, the Help to Buy: ISA scheme was available to new applicants until 30th November 2019. For more information about the scheme and alternatives, read our guide.
Help To Buy: ISA FAQ
Is there a Help to Buy: ISA age limit?
Yes. The lower age limit is 16, there is no upper age limit.
Do you have to pay back your Help to Buy: ISA?
No. The government’s 25% bonus is effectively ‘free’, but it can only be put towards purchasing your first home.
Is there a Help to Buy: ISA end date?
Yes, the deadline for opening a Help to Buy: ISA was 30th November 2019. If you opened this ISA, you’re eligible for your 25% government bonus until 2030.
Can you have more than one Help to Buy: ISA?
No. Unlike regular ISAs, you can only have one Help to Buy: ISA. But you’re free to transfer your balance to a different provider, ensuring you get the best interest as you save for your purchase. However, if you’re buying your first home with someone who also has a Help to Buy: ISA, you can use both of them and reap twice as many benefits.
Remember, you have to transfer the funds directly from your old Help to Buy: ISA to your new one to maintain the tax-free balance. You can’t withdraw funds into a conventional account or another ISA, and then ‘put them back in’ later.
Will opening a Help to Buy: ISA stop me from having another, regular ISA?
No. Opening a Help to Buy: ISA won’t affect any of your other ISAs.
Is the Help to Buy: ISA a government scheme?
Yes. The 25% bonus is paid directly to you from the government. Strictly speaking. there is no such thing as a ‘government Help to Buy: ISA’ as the ISAs themselves are provided by banks and financial institutions.
Getting the best first mortgage
As you can hopefully see, a Help to Buy: ISA can help you to get your deposit in order, but what about the mortgage for the rest of the loan? We’ll talk about that here.
How much of a deposit do I need?
As a general rule, the more ‘risky’ your loan is seen by a lender, the less of them are likely to lend to you. As a consequence – you’ll need a larger deposit, and the fees you’ll incur over the term of the mortgage will be higher. Various factors come into play, including your age, prior credit history, the type of property you want to buy and the loan to value of your purchase.
These factors may restrict the number of lenders available to you, but you still have options. If in doubt, speak to an expert. We work with plenty of mortgage experts who can advise you.
How much will a lender offer me?
At the moment, the most that lenders will offer is:
- 95% of the property’s value for a residential mortgage
- 85% for buy to let
- 75% for a bridging loan
Remember, these are the most that lenders will work with. The higher the perceived risk, the less they’ll offer.
Will the source of my funds affect my eligibility?
Yes. The sources of your deposit can affect how much lenders will offer. For example, some lenders won’t accept gifted deposits from people who are not from your family, and funds that originate from overseas may not be accepted as part of a deposit. When in doubt, ask an expert.
What mortgage can I afford?
This will partly depend on what the lender in question is willing to offer. Most will offer 4 times your annual income, some will offer 5, and a handful will offer 6. If you have any additional outgoings and financial commitments, such as spousal maintenance payments, this can reduce the amount that the lender is willing to offer.
Does my employment status affect how much I can afford?
Yes. How you earn money is also a factor in the matter. For example, lenders are most comfortable working with those who take a conventional salary that is not dependent upon commission or bonuses. Your time in employment and your type of employment contract are also a factor. If you’re self employed – lenders will consider your earnings over a certain time-frame. Most of them will look at 3 years of trading – though less of them will consider 2 years, 1 year or in rare instances, 9 months. Additional income – such as a second jobs or benefits will also be factored in.
Can I get a mortgage with credit issues?
Many borrowers will be able to use their Help to Buy: ISA even if they have had credit issues, they just tend to reduce the amount of options you have. The good news is, they don’t have to be a barrier, and there’s a number of issues that could affect your creditworthiness but are still able to get approved, given in order of importance:
- Low credit score
- Debt Management Plans
In general, the more recent and severe the issue, the more deposit you’ll need and there’ll be fewer lenders considering your application. For more info on this visit our section on bad credit mortgages, or better, make an enquiry and one of the bad credit mortgage experts will give you the right advice!
Can I get a mortgage on a unique property?
Usually, though it depends on the kind of property. The definition of ‘unique’ is rather wide. It could include listed buildings, flats in high rise buildings, ex local authority properties, uninhabitable properties and more. It can also include those made of non-standard construction, such as concrete and timber frames.
This really can vary on a case by case basis and the advise of an expert can really help you here. Read our section specifically for non-standard property for more info. Or make an enquiry and speak to one of the experts directly.
Can I get a mortgage into retirement/later life?
Yes, though this will depend to an extent on your age, and your other circumstances. Some lenders will cap the maximum age at application, others will cap the maximum age at the end of term. Some just won’t lend to retired people. That said, some lenders don’t have any upper age limits at all.
Speak to a mortgage expert
While the Help to Buy: ISA is no longer available to new applicants, you still have plenty of other options when it comes to saving up for a mortgage and getting bonuses from the government. Make an enquiry and we’ll match you with an expert for a free, no-obligation chat.
You can also read our guide about the Help to Buy: ISA changes.