There’s been lots of confusion about the help to buy ISA, so how do they work and what should you know before you open one?
1. You have to be a first time buyer to have a help to buy ISA. All help to buy ISA providers will ask you to tick a box to say that you’ve never owned a property in the UK either in your own name or jointly. You’ll normally have to provide your address and how long you’ve lived there, plus you have to give your National Insurance number. You must be at least 16 years old to open one.
2. If you pay into a help to buy ISA you can’t normally take out a cash ISA in the same year. However, if you have a Nationwide help to buy ISA and cash ISA you can have both.
SAVVY TIP: It’s all to do with the way Nationwide has structured its ISAs. It bundles them together (sort of) so you can have more than one ISA with Nationwide in the same tax year and still not break the rules.
3. There are limits on the purchase price of a property if you have a help to buy ISA. You can only use a help to buy ISA to help you purchase a property costing up to £250,000 in England or Wales, or £450,000 in London. If there are two of you buying a property, each of you can take out a help to buy ISA.
4. You can use your help to buy ISA alongside other government schemes. You can use it with the government’s help to buy equity loan, shared ownership or the help to buy mortgage guarantee.
5. For every £200 you pay in, the government will give you £50, up to a limit of £3,000. But you have to have paid in £1,600 in order to get the government bonus. If you have less than this, you won’t get any bonus.
6. You have to close your help to buy ISA account in order to claim the government bonus. Your solicitor or conveyancer can charge £60 (including VAT or £50 excluding VAT) for claiming the government bonus and paying it to the mortgage lender.
SAVVY TIP: Closing the help to buy ISA and claiming the bonus can take at least 12 working days. It can take seven working days to close the help to buy ISA and get the closing statements and paying the bonus can take a further five business days. In some circumstances this can be done in 24 hours, although I’m unclear (even having read the rules) when this special procedure can be used.
7. The bonus cannot be used towards the deposit you put down at exchange of contracts. However, it can be used towards your mortgage deposit. This is where there’s been some confusion.
Traditionally, when you buy a property, you put down a deposit at exchange of contracts (if you’re buying in England or Wales as the buying process is different in Scotland). The deposit is typically 10% of the purchase price but it can be more or less (I only put down a 5% deposit when I bought my first property years ago). But if you have a mortgage it’s possible that the amount you put down in cash is more than the deposit you pay at exchange of contracts.
For example, if you had 20% of the property’s purchase price to put down and were taking an 80% mortgage, you probably wouldn’t put the whole 20% down at exchange of contracts because if, for any reason, you had to pull out of the purchase, you’d lose a lot of money.
SAVVY TIP: The government bonus is paid to your mortgage lender when you complete on the property purchase, essentially to increase your mortgage deposit, but it can’t be used to pay the deposit when you exchange contracts and it can’t be used for things like solicitor’s fees either.
8. There are special arrangements if your house buying falls through. If the house purchase falls through after you’ve closed your account and tried to claim the bonus, you must be given a ‘purchase failure notice’. You will get this within ten working days of the purchase falling through. This is something you can give your help to buy ISA provider so that you can re-open your help to buy ISA.
SAVVY TIP: The help to buy ISA rules give you the right to re-open a help to buy ISA with the same provider within 12 months of your house purchase falling through. If, for any reason, the bank or building society can’t let you re-open your ISA, it must let you open a new help to buy ISA – as long as you do this within 12 months. The rules say that all the money you held in your old ISA can be transferred to the new ISA.
9. If you take money out of your help to buy ISA, you could lose some or all of the government bonus. If you take all the money out of your help to buy ISA before you buy a property, you won’t be able to claim any government bonus. If you take some, but not all of the money out of your help to buy ISA, you can’t claim a government bonus on the money you’ve withdrawn.
SAVVY TIP: It’s in the help to buy ISA rules that your bank or building society should warn you that taking money out of your help to buy ISA could affect how much you get by way of a government bonus.
10. You cannot use a help to buy ISA if you’re going to buy a property with a buy-to-let mortgage. The only exception is if you’re in the armed forces (regular or reserve forces), or you’re married to or in a civil partnership with someone who’s in the armed forces, and not able to occupy the property you’re buying (but plan to have it as your main home in the future). In that case, you can use your help to buy ISA alongside a buy-to-let mortgage.
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