Help to Buy ISAs Explained

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Home Help To Buy Isas Help To Buy ISAs Explained
Pete Mugleston

Author: Pete Mugleston

Mortgage Advisor, MD

Updated: May 14, 2024

*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.

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.

The scheme closed to new applicants in 2019 but it’s still possible to claim your government bonus until 2030, if you opened one before the deadline passed.

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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.

How Help to Buy: ISAs 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.

Minimum and maximum balance to qualify for the 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 fulfil 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.

Eligibility criteria

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 to 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.

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Get matched with a Help to Buy ISA 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 to get yourself fully up to speed.

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FAQs

Yes. The lower age limit is 16, there is no upper age limit.

No. The government’s 25% bonus is effectively ‘free’, but it can only be put towards purchasing your first home.

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.

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.

No. Opening a Help to Buy: ISA won’t affect any of your other ISAs.

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.

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
  • Defaults
  • CCJs
  • Debt Management Plans
  • IVAs
  • Bankruptcy

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.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for Online Mortgage Advisor of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

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