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Best First Time Buyer ISAs

How do I get the best rates on a Help to Buy ISA in the UK? Get the right advice on this here!

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 4th July 2019* | Published: 4th June 2019

We often hear from first time buyers who have used a Help To Buy ISA and are now looking for a mortgage; and we also speak to many at the outset, looking to start using a Help To Buy ISA to build their deposit. Many of them want to know how to get the best interest rates on a Help To Buy ISA or if there are alternative options available, while others want to know what mortgages could be on offer once they’ve used a Help To Buy ISA to save their deposit.

We have collated the most relevant information for first time buyers looking for the best Help To Buy ISA, and you will find the following topics covered below:

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How to get the best Help to Buy ISA interest rate

Many first time buyers ask ‘Will I receive interest on a Help to Buy ISA as well as the bonus?’ well yes, yes you do.

To get the best interest rate on a Help To Buy ISA you need to look at the whole of the market not just what it available from a bank or building society on your local high street or shopping centre.

There are many providers of Help To Buy ISAs out there, some you may never heard of but they all have the same FSCS (Financial Services Compensation Scheme) backing as the well known brands on the high street - so your money is safe.

This is all about finding the best Help To Buy interest rate and product for your circumstances. To do this, you could speak to one of the experts we work with who would be able to give you the best advice.

They have access to the entire market, so you can rest assured that you will be paired up with the provider best positioned to offer favourable rates to a customer with your needs and circumstances.

Is Help To Buy ISA interest paid monthly or annually?

The answer is either. You will be able to find Help To Buy ISAs that pay the interest accrued monthly as well as many offering interest paid annually. There is no real science about which way is better - the one to choose will come largely down to the borrower’s personal preference.

As the aim with a Help To Buy ISA is to save a deposit to purchase a property, then the likelihood is that the savings will be held in the account for some time. Therefore it may be nice to see the lump some of interest paid annually, but if you are a saver who likes to see the balance grow month on month -  the added interest along with your monthly deposit could be the way to go.

How to compare the best Help to Buy ISA accounts and providers

Doing a Help To Buy ISA comparison yourself can involve a lot of legwork, and there’s no guarantee you’ll stumble upon the best deal for you. The main thing with any comparison is knowing what you are trying to compare and also speaking to an expert, like the ones we work with, could help and save you a lot of time.

Here are a few things to discuss with your broker when looking at the various options:

Monthly Deposits

Some providers have a minimum deposit per calendar month which means you are committed to having to deposit somewhere between the minimum of say £10 with some providers (this could be more) up to a maximum of £200, otherwise the interest rate may be reduced as a penalty.

Some providers do not have a minimum monthly deposit requirement, so if you choose not to deposit in one month or even for two months, that will be  fine. The monthly deposit allowance of up to £200 does not roll over just because you have missed a month or two.

ISA Transfers

Something to consider if you have an existing cash ISA, is that some providers allow you to transfer an ISA from previous tax years into your Help To Buy ISA, thus giving you a kickstart on your balance and potentially helping you get more government bonus.

Some providers may not let you transfer an ISA in or out, so if you think you may potentially want to chase the best rate every year, you will need to make sure that the provider allows transfers of Help To Buy ISAs.

It’s very important to note that there is a specific process to transferring ISAs that’s handled by the lenders. Taking the money out of an ISA into another account to then transfer into another providers ISA may achieve nothing other than preventing you from paying money into an ISA of any kind until the next tax year.

Accessibility

Are you someone who would like to see their savings and have access to them online?  Would you prefer a branch based account with a passbook? If so, you could see the funds you have but would have to make a trip to the nearest branch to make a withdrawal.

Or you could be in the ‘I would rather forget the funds were there’ bracket and just have postal access. All these things are worth discussing with your broker when comparing the best Help To Buy ISA for your circumstances and saving style.

Withdrawals

When you start saving for a deposit, that is what that money is earmarked for but sometimes in life there are occasions when you need access to the funds for other purposes. The majority of Help To Buy ISA providers have immediate access accounts which means you do have access to your money if you do need it.

It would be useful to point out here that any withdrawals you make from a Help To Buy ISA would not count towards the balance for bonus purposes from the Government.

Monthly or annual interest

As we’ve already touched on, Interest on a Help To Buy ISA can be paid monthly or annually. Generally monthly paid interest came about from people wanting an income from their savings or investments but should not make much of a difference either way to someone saving for a deposit. Majority of Help To Buy ISAs will have interest calculated daily and compounded which means there shouldn't be a difference between taking your Help To Buy ISA interest monthly or annually and would come down to personal preference.

Help to Buy ISA v Lifetime ISA (LISA): What’s the best first time buyer ISA?

Help To Buy ISAs have been around for a few years, however an alternative in the Lifetime ISA (LISA) was launched in April 2017. Where a Help To Buy ISA is purely for people looking to save for a deposit on their first home, a Lifetime ISA can be used by people looking to save a deposit on their first home or by people looking to save for retirement.

The key differences are:

Deposits

  • You are able to deposit up to £4,000 per year into a LISA compared to £2,400 into a Help To Buy ISA.
  • You are able to deposit lump sums up to the £4,000 total yearly allowance and/or deposit monthly compared to only being able to save a maximum of £200 a month into a Help To Buy ISA.
  • You are able to invest in stocks and shares in a LISA where as a Help To Buy ISA is purely cash only.#

Government bonus

  • There is a 25% bonus payable on both the Help To Buy ISA and the LISA, however the potential bonus could be more using the LISA, due to being able to deposit more per year (upto £4,000 instead of £2,400).
  • The bonus on a LISA can be paid for a lot longer than the 4 years / £12,000 that the Help To Buy ISA does, the Lisa for homeowners can pay a bonus every year from when it has been opened to when the person is 49 years old.

Withdrawals

  • As mentioned earlier Help To Buy ISAs are pretty flexible, you can have instant access to your savings without penalty.
  • The LISA is not flexible, funds can be withdrawn after the 1st anniversary of the account being opened or anytime thereafter to purchase a property BUT if you do need to withdraw funds for something other than a deposit to purchase a property a 25% charge will be applied thus leaving you with the possibility of having less than you paid in.

Whether you should choose a Help to Buy ISA or a LISA will come down your needs and your goals in the property market. If you’re unsure which one to choose, you can get in touch with OMA today by making an enquiry and speaking with one of the experts we work with and get the best advice for your first time buyer ISA.

Have a plan as a first time buyer

The best thing to do is to have a plan, have a specific goal in mind and know what your options are - there would be no point saving a deposit in the best first time buyer ISA available for a £250,000 property if you couldn't afford the repayments of that type of mortgage.

Here are some other things to consider in a plan:

  • How much can you afford to save per month (be realistic)?
  • What type of property do you want and how much are they?
  • What is the goal (how much deposit do you need)?
  • How much of a mortgage could you get and could you afford it?
  • Maintain or improve your credit rating/ profile.

Things like house prices, mortgage interest rates and criteria can fluctuate or change but you are best to have the full picture at the outset instead of saving aimlessly without really knowing…

What you will find is a lot of the things in the list above are linked and you wouldn't necessarily know one unless you knew the other.  Speak to one of the experts we work with, who will be able to go through all this information and more to give you the best advice and set you up with a plan.

What mortgage products are available after using a Help to Buy ISA?

A sometimes common myth is you may be obliged to take out your mortgage with the same provider as you have used for the ISA, this is not true - you will be able to use whichever lender you meet the criteria of. However sometimes there may be a specific 'special' deal available from certain banks or building societies to encourage people who have used said bank or building society to save their deposit to take the mortgage with them too.

What is the best bank for a Help to Buy ISA mortgage?

There’s no one-size-fits-all answer to this question as every lender offers different products and interest rates can vary across the board.

Which Help to Buy ISA mortgage provider is right for you will come down entirely to your needs and circumstances, and the whole-of-market brokers we work with can pair you up with the lender whose best positioned to offer favourable rates to you.

Make an enquiry and we will connect you to one of them for bespoke advice and access to the right lender for a customer with your exact profile.

Speak to an expert on Help to Buy ISAs

If you have questions about Help To Buy ISAs  or anything else in this article and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry.

Updated: 4th July 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

Find out more about the best first time buyer ISAs.

Help To Buy ISAs