Help to Buy ISAs were an incredibly popular government initiative, with over half a million people opening one between 2013 and 2019. So, you’re far more likely to have heard of them than other, less popular, schemes for homebuyers.
There are several alternatives to Help to Buy ISAs which each have advantages and disadvantages. We’ll talk you through the options and give you some tips on how to pick one.
Can you still apply for a Help to Buy ISA?
No, it’s no longer possible to apply for a Help to Buy ISA. The deadline to open one was 30 November 2019.
If you already have a Help to Buy ISA, it’s still possible to contribute to it. You can pay in up to £200 a month, from now until November 2029. You have until November 2030 to claim your 25% bonus, which you can only do when buying an eligible property (i.e. a property worth up to £250,000, or £450,000 in London).
Is there a replacement for the scheme?
Yes, in fact, the replacement launched several years ago: the Lifetime ISA. With a Lifetime ISA, you can pay in up to £4,000 each year and the government will pay in your 25% bonus at the end of the tax year. To open a Lifetime ISA, you must be over 18 and under 40. You can continue paying in until you are 50 years old.
You can only withdraw the money to buy your first home, or once you reach the age of 60. Otherwise, you’ll pay an early withdrawal charge of 25% of your total savings. There’s an exception if you’re diagnosed with a terminal illness and have less than 12 months to live.
When we compare Help to Buy ISAs vs Lifetime ISAs, the latter has several advantages:
- You can open a Lifetime ISA with just a £1 contribution
- You can pay in more than a Help to Buy ISA (£4,000 a year vs £2,400)
- The maximum bonus available is larger (up to £33,000 if you pay in £4,000 each tax year from age 18 to 49)
- You have the option to pay in lump sums, without a monthly limit
- You can invest your savings in stocks, shares and other assets that have higher growth potential than cash
- If you don’t ever buy your first home (or if you buy an ineligible property), you’ll still receive your bonus if you wait until the age of 60 to withdraw
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Alternatives to Help to Buy ISAs
A Lifetime ISA (described above) offers most of the same benefits as a Help to Buy ISA, plus a few more of its own.
There are also some other government schemes that provide help to get on, or move up, the property ladder:
- The mortgage guarantee scheme makes 95% mortgages more widely available, so you could buy a home with just a 5% deposit
- Stamp Duty Land Tax relief allows first-time buyers to save £5,000 on stamp duty
- The Shared Ownership scheme allows you to buy a share of between 10% and 75% in a home if you can’t afford the total purchase price. You’ll be able to live in it and pay rent on the remaining share.
- Investment ISAs could be an alternative for savers with investment knowhow. You can read more about them on our sister website, Online Money Advisor.
How a broker can help you decide on the best option
Even if you’re not ready to buy yet, it can be worth speaking to a mortgage broker about your options.
They’ll help in numerous ways:
- Proving information. Your broker will know all the details of each government scheme and alternative product and can clearly explain the pros and cons to help you compare them.
- Discussing the impact on your mortgage. It’s best to find out early on if the Help to Buy alternative you choose will limit your mortgage options. For example, less than 4 in 10 lenders provide mortgages for Shared Ownership buyers.
- Making a recommendation. Even with all the information, it can be difficult to decide for yourself which option to go for. After discussing your situation, your broker can recommend which solution is best suited to you.
- Planning for the future. Your broker will help to see clearly where you are now financially, and where you need to be to buy a home.
If you’d like help finding a broker, get in touch.
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Combining your Help to Buy ISA with other products
If you already have a Help to Buy ISA but it doesn’t contain enough savings to cover your whole mortgage deposit, you’ll need to combine it with savings you have elsewhere.
Combining a Help to Buy ISA and a cash ISA
You can’t pay into both a Help to Buy ISA and a cash ISA in the same year. However, you might have an old cash ISA, or you might have a ‘split ISA’ with both a Help to Buy element and a cash element. In these cases, you can simply withdraw the money from your cash ISA to cover the shortfall between your Help to Buy savings and the deposit amount.
Combining it with a Lifetime ISA
You’re allowed to have a Lifetime ISA and a Help to Buy ISA and pay into both in the same tax year. However, you can only use the bonus from one to buy a home. If you can pay your mortgage deposit from your Help to Buy ISA and other cash savings, it might be better to wait until 60 to access your Lifetime ISA, so you can benefit from both bonuses.
Transferring your funds elsewhere
If you’re not ready to use your Help to Buy ISA savings to buy a home just yet, that doesn’t mean you can only leave them where they are.
You can also:
While Help to Buy ISA providers can no longer offer these products to new customers, a few will still let you transfer in one that you already have. You might want to do this if you see that another provider offers a better interest rate than your current provider.
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Get matched with a government scheme mortgage specialist
While you’re still early in your home buying journey, it’s not too soon to speak to a mortgage specialist. In fact, seeking advice early on can set you off on the right foot and help you to reach your goal faster.
We work with numerous brokers who are experts in Help to Buy, Lifetime ISAs and the other alternative schemes. If you’d like to schedule a free, no-obligation chat about your options, just give us a call on 0808 189 2301 or enquire online.
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