Pete Mugleston | Mortgage AdvisorPete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.
Updated: 23rd August 2019* | Published: 5th April 2019
We often take queries from customers wanting to know if they can combine a Help to Buy ISA with another savings product such as a cash ISA or a stocks and shares ISA.
As a first time buyer, you’ll want to ensure your budget will stretch as far as possible, and the rules are not always easy to get to grips with. The good news is that the advisors we work with are experts when it comes to Help to Buy ISAs.
So we’ve collated the most relevant information for borrowers looking for the best Help to Buy ISA solution, whether you’ve just started saving or have already put some money aside.
One of the most common questions we hear from customers on this topic is “can i have a cash ISA and a Help to Buy ISA?” We also receive plenty of queries about the possibility of combining a Help to Buy and stocks and shares ISA. The answer is not always straightforward, because it will depend not only on the type of ISA you already have, but when you opened it and how much is in it.
Can you have a cash ISA and Help to Buy ISA at the same time?
Customers regularly ask us “can I pay into a cash ISA and a Help to Buy ISA at the same time?” and the answer isn’t entirely straightforward.
The rules state that you cannot open Help to Buy ISA and a cash ISA in the same year. However, don’t worry if you have an existing cash ISA which you opened in a previous year, as this will not prevent you from opening a Help to Buy ISA in a subsequent one.
Help to buy ISA split with cash or stocks and shares ISA
If you want to open a Help to Buy ISA but you’ve already opened a cash ISA in the same year, all is not lost: plenty of banks have gotten around the problem by offering a hybrid or split Help to Buy ISA, which can be used to combine Help to Buy ISAs with your existing savings by placing them in one single ‘wrapper’.
By opening one of these split ISA Help to Buy accounts, you’ll have the option of linking your existing savings to the new account, and transferring the funds across, effectively creating a single account for your deposit fund. This may result in lower interest rates than you’d been enjoying from your ‘old’ ISA, but this will be more than compensated by the 25% bonus you’ll receive through Help to Buy.
It’s also worth being aware that if the sum in your ‘standard’ ISA amounts to £1,200 or less, you won’t need to open a split ISA Help to Buy account: you can simply transfer the money into any Help to Buy ISA.
Can you have a Help to Buy ISA and a stocks and shares ISA?
Yes, you can open a Help to Buy ISA with a stocks and shares ISA from any year. In fact, opening an ISA of this type is another solution to consider if you have already opened or paid into a cash ISA and wish to open a Help to Buy ISA in the same tax year, as Stocks and Shares are not subject to the same tax benefits.
Help to Buy ISA vs cash ISA
The government contribution makes the Help to Buy ISA a much more generous proposition than a standard savings account or ISA, especially while interest rates are low. There are numerous Help to Buy ISAs available on the market, and most major high street banks and building societies currently offer them with rates of up to 2.58% tax free interest up for grabs.
You are free to take your money out of a Help to Buy ISA at any time and are not committed to putting it into a property deposit should your plans change and you decide to spend or invest it elsewhere - however you will only be able to claim the 25% bonus when you use it for a mortgage deposit as intended, and are able to demonstrate through your solicitor that you have done so.
Can you have a junior ISA and a Help to Buy ISA?
We often hear from customers who want to know whether you can have a junior ISA and a Help to Buy ISA if you’re aged between 16 and 17. The answer is yes, but the Help to Buy ISA holder will need to open the account in their own name - a parent or guardian cannot do this on their behalf.
Can I have a Help to Buy ISA and a savings account?
Yes, there are no rules against this. Indeed, you might need to open a savings account if you’ve filled up your Help to Buy ISA and still need to save up more capital for the deposit.
Can my portfolio ISA include a Help to Buy ISA?
Yes, some ISA managers offer portfolio ISAs which allow you to hold multiple products in a single wrapper, one of which can be a Help to Buy ISA. The standard allowance limits will still apply.
Getting the best Help to Buy mortgage
As mentioned previously there is no restriction on mortgage providers with a Help to Buy ISA, so once you have your deposit ready, you can approach any lender for a mortgage offer. There are a number of factors to bear in mind when applying for your first mortgage:
What deposit will I need?
Most mortgage providers will lend up to 95% of the value of the property, meaning you will need to contribute at least a 5% deposit, and in many cases 10%, 15% or as much as 25% depending on a number of factors relating to the lender’s perception of risk: the more higher your overall risk profile as a borrower (if you have a lot of bad credit or are buying a non-standard property for example), the higher the deposit is likely to be.
Don’t forget that if you choose to put down a larger deposit your interest rate and monthly payments are likely to be lower, which is another reason why that extra 25% can make a big difference to the mortgage deal you could secure - plus keep in mind that the ISA can be used in conjunction with a Help to Buy equity loan.
Lenders all have slightly different approaches when it comes to working out affordability, but most will lend 4.5 x your salary, some will offer 5 x and a handful will go up to 6 x your annual earnings in the right circumstances.
While this is a helpful rule of thumb, it’s worth speaking to an expert to find out what this means for you, because each lender has its own policy on what can be counted as a ‘salary’, and while some are comfortable with self-employment and other ‘non-standard’ arrangements, others are not so open-minded.
Redeeming your Help to Buy ISA with an existing ISA
If you’re using a Help to Buy ISA and an existing cash ISA to boost your mortgage application, make your solicitor or conveyancer aware as soon as possible so this doesn’t delay completion.
You will need to instruct them to apply for your government bonus, which will be added to the funds you’re putting towards your first home - the bonus must be included with any capital consolidated at the completion of the transaction.
Speak to an expert on Help to Buy ISAs today!
If you like anything in this article or you’d like to know more, call Online Mortgage Advisor today on 0800 304 7880 or make an enquiry here.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. – We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
*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.
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 OMA of course!
Read more about Pete here...