Help to buy ISAs – how do they work and who’s paying the highest interest rate?

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If you’re a first time buyer saving towards a home you’ll be able to open a help to buy ISA and get a top-up from the government when you buy. Which banks and building societies pay the highest interest rate? Find out about help to buy ISA best buys.

Help to buy ISAs – the basics

Help to buy ISAs are part of a government plan to help first time buyers to ‘get a deposit for their first property’. The idea is that you save in them towards a deposit for your first home and the government makes a contribution as well. Here’s how they work:

  • Help to buy ISAs work in a similar way to an ordinary cash ISA, except that you will get some extra money from the government as long as you buy a property
  • You can save up to £200 a month and up to £12,000 in total.
  • You can also pay in up to £1,000 when you open the account (which means you can pay in up to £1,200 in the first month).
  • For every £200 you pay in, you’ll get £50 from the government. However, you must have saved at least £1,600 in order to get the minimum government bonus of £400.

SAVVY TIP: If you’ve saved less than £1,600 and you close your account, you won’t get a government bonus.

  • You won’t get the bonus until you buy your first home. You don’t get this money added as you save; instead it’s paid direct to your mortgage lender when you buy your first home.

SAVVY TIP: Your solicitor or conveyancer has to apply for the bonus and it’s paid to the mortgage lender. The solicitor can charge you up to £50 plus VAT to apply for the bonus on your help to buy ISA.

  • If you can save the maximum of £12,000, you’ll get a bonus of £3,000 from the government.
  • It can be used to buy a property costing up to £250,000 outside of London or £450,000 in London.
  • Help to buy cash ISAs will be available to take out for five years (until 30th November 2019). After that you won’t be able to take out a new help to buy ISA, although you will be able to carry on saving into your account. You must claim the bonus from the government by 1st December 2030.

SAVVY TIP: As with ordinary ISAs, interest will be tax-free. You can have one help to buy ISA per person (so two if you’re buying as a couple).

  • You don’t have to take out a mortgage with the same bank or building society that you have your help to buy ISA with.

Who can have a help to buy ISA?

Not everyone can take out a help to buy ISA, but if you want to buy your first home, you are eligible to take one out, as long as you don’t rent out the property.

  • Only first time buyers can have a help to buy ISA. That means anyone who doesn’t currently own a home and who has never owned a home, either in the UK or overseas.

SAVVY TIP: Before you get your government bonus into the help to buy ISA, you’ll have to sign a ‘first time buyer’ declaration. You can find out more about the first time buyer declaration on the help to buy website.

  • You must be 16 or over to have a help to buy ISA.

Help to buy ISAs – how much to pay in

Help to buy ISAs work in a similar way to ordinary cash ISAs, in that interest is paid free of tax and there are limits on how much you can pay into one. However, there are some differences as well.

  • You can only have one help to buy ISA. Unlike with ordinary cash ISAs, you don’t take out a new one every year, although you can transfer your help to buy ISA to another bank or building society in order to get a better rate of interest.
  • You cannot have a cash ISA and a help to buy ISA in the same tax year. If you’ve already opened a cash ISA in the current tax year (i.e. on or after April 6th 2018), you can transfer up to £1,200 into a help to buy ISA. If you have more than £1,200 in a cash ISA in the current tax year, you’d have to transfer the rest of the money into a stocks and shares ISA. You can also transfer money from your help to buy ISA to a lifetime ISA.

SAVVY TIP: This limit on cash ISAs doesn’t affect any money you’ve built up in a cash ISA from previous tax years. Some banks and building societies, including the Nationwide, let you hold several cash ISAs in one cash ISA wrapper. This would mean you’d be able to have an ordinary cash ISA and a help to buy ISA in the same wrapper with the Nationwide. Other banks and building societies may offer this ISA portfolio approach.

  • You must pay into your help to buy ISA every month, or you’ll lose some of your £200 monthly allowance.
  • You can take money out of your help to buy ISA but you can’t put that money back in again. The only exception is if you take money out of the help to buy ISA to buy a house and the house purchase falls through.

Who’s offering help to buy ISAs?

Quite a few banks and building societies offer help to buy ISAs. The interest rates vary quite widely, but some of the best buy accounts are only available to people who live in a specific area. Here are the help to buy ISA providers in alphabetical order.:

Aldermore bank: Its help to buy ISA pays 2% interest. You can manage your help to buy ISA by post, by phone or online.

Bank of Scotland: Its help to buy ISA pays 1.5% interest. You can manage your help to buy ISA in a branch, by phone or online.

Barclays: Its help to buy ISA pays 2.58% interest. You can manage your help to buy ISA in a branch or by phone.

Buckinghamshire building society: Its help to buy ISA pays 2.5% interest. You can manage the account in a branch or by post.

Chorley building society: Its help to buy ISA pays 1.75% interest. You can manage the account by branch or post.

Clydesdale bank: Its help to buy ISA pays 2% interest. You can access the account by branch, post or phone.

Cumberland building society: Its help to buy ISA pays 2.75% interest. You can access the account in a branch and you have to live in the area.

Halifax: Its help to buy ISA pays 2.25% interest (when it launched its help to buy ISA, it paid 4%,  but you can’t buy that ISA anymore). You can open a help to buy ISA in a branch, by phone or online.

HSBC: Its help to buy ISA pays 2.25% interest (on balances up to £12,000 and 0.05% on anything over that). You can open a help to buy ISA in a branch, by post or phone.

Lloyds bank: Its help to buy ISA pays 1.5% interest. You can open a help to buy ISA in a branch or by phone.

Monmouthshire building society: Its help to buy ISA pays 2.35% interest. Only customers who live in certain postcodes can open an account. You can manage the account in a branch, by post or online.

Nationwide: Its help to buy ISA pays 2.5% interest. You can manage the account in a branch or online.

SAVVY TIP: If you have a cash ISA with Nationwide that you’ve taken out in the current tax year, you can still have a help to buy ISA with Nationwide.

NatWest bank: Its help to buy ISA pays 2.5% interest. You can open and manage the account online, in a branch, by phone or in writing.

Newcastle building society: Its help to buy ISA pays up to 2.56% interest. It is only available to customers in the North East in certain postcodes. You can manage a help to buy ISA in a branch, online or by post.

Penrith building society: Its help to buy ISA pays 3% interest, but it’s only available to people living in Cumbria postcodes. You can manage the account in a branch and by post.

Progressive building society: Its help to buy ISA pays 2.25% interest. It can be opened by existing customers or new customers living in Northern Ireland. It can be managed by post and in a branch only.

Santander: Its help to buy ISA pays 2.25% interest for 123, World and Select customers. Everyone else gets 1.75%. You can open a help to buy ISA in a branch or by ringing 0800 032 4264.

Tipton & Coseley building society: Its help to buy ISA pays 2.95% interest (it used to pay 3% interest), but it’s only available to people living in certain postcodes. You can manage the account by post or in a branch.

Ulster Bank: Its help to buy ISA pays 2.5% interest. You can open a help to buy ISA in a branch, online, by phone or in writing.

Virgin Money: Its help to buy ISA pays 2.5% interest. You can open and manage the account online.

Yorkshire bank: Its help to buy ISA pays 2% interest (it used to pay 2% interest). You can manage the account in a branch, by post, by phone or online.

Yorkshire building society: Its help to buy ISA pays 2.25% interest. You can open a help to buy ISA in a branch (Yorkshire building society and Norwich & Peterborough), online (Yorkshire building society or Chelsea building society) or by phone.

Useful links:

There’s more information about the help to buy ISA on the government’s help to buy website.

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Ten things you need to know about the help to buy ISA

Understanding the different types of mortgage – your guide to fixed rate, tracker, discount, variable rate and capped mortgages.

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