Getting On The Property Ladder: Help To Buy ISAs

Sarah Bradford takes a look at Help to Buy Individual Savings Accounts, and how they can assist first-time buyers to get on the property ladder.

Help to Buy Individual Savings Accounts (HBISAs) launched on 1 December 2015, having previously been announced by Chancellor George Osborne at the time of the summer 2015 Budget. HBISAs are part of the Government’s ‘Help to Buy’ scheme, which aims to support those individuals aspiring to become homeowners.

HBISAs are available through banks and building societies to first time buyers saving for their first home. Savings in the HBISA earn tax-free interest, and the Government will add a bonus to the amount saved when the money is used as a deposit on the saver’s first home.

HBISAs are available to first-time buyers aged 16 and over. For these purposes, a ‘first-time buyer’ is someone who has never owned an interest in a residential property, either in the UK or abroad. Anyone who has owned an interest in a property, regardless of whether it is a property that they bought or one that they inherited, cannot have a HBISA. It is not necessary to have identified a property to buy in order open a HBISA, or indeed have a definite plan to buy one. They can be used as a savings account, with the added benefit that the Government will add a bonus if the funds are used as a deposit for a first home.

The Government bonus is generous and opening a HBISA is arguably worthwhile for anyone who has not previously owned a property, even if they have no definite plans to buy a home now, as this may change in the future. 

The opportunity to open a HBISA is only available for four years from 1 December 2015. However, once an account has been opened a person can continue to use it to save and as long as the funds are used as a deposit for their first home by 2030, they will benefit from the Government bonus.

A person can make an initial deposit of up to £1,000 in a HBISA and can save up to £200 per month. This means that it is possible to save £3,400 in year one (£1,200 in month one, and £200 a month thereafter) and £2,400 in subsequent years. 

A Government bonus of 25% of the amount saved is added when the savings are used as a deposit to help the saver buy his or her first home. The minimum Government bonus is £400 and the maximum bonus is £3,000. This means that any saver who saves at least £1,600 into a HBISA will receive a Government bonus. To qualify for the maximum bonus of £3,000, the saver must save at least £12,000 in their HBISA. 

Saving the maximum permitted each month will mean that a saver will need to save for four years and seven months to earn the maximum Government bonus.

The following table illustrates the Government bonus that is payable at different levels of savings

Amount saved by saver Government bonus (25%) Available deposit

£1,600 £400 £2,000

£2,000 £500 £2,500

£3,000 £750 £3,750

£4,000 £1,000 £5,000

£5,000 £1,250 £6,250

£6,000 £1,500 £7,500

£7,000 £1,750 £8,750

£8,000 £2,000 £10,000

£9,000 £2,250 £11,250

£10,000 £2,500 £12,500

£11,000 £2,750 £13,750

£12,000 £3,000 £15,000

As illustrated by the above Table, the Government bonus boosts the funds available as a deposit. A person who has saved £7,000 in their HBISA at the time they buy their first property will receive a Government bonus of £1,750, giving them a total deposit of £8,750 and a person who has saved £12,000 in their HBISA will receive the maximum Government bonus of £3,000, giving them a £15,000 deposit towards their first home.

All individuals age 16 and over who have not previously owned an interest in a property are eligible to open a HBISA and to benefit from the Government bonus on their savings. This means that if a couple buy their first home together and each person has saved £12,000 in a HBISA, jointly, they will receive a Government bonus of £6,000 (£3,000 each). This will increase their deposit from £24,000 to £30,000.

If a first time buyer is buying a property with someone who has already owned a home, the first time buyer can still save for a deposit in a HBISA and benefit from the bonus up to a maximum of £3,000. However, the person who has previously owned a home will not be eligible for a HBISA, so the maximum bonus available to the couple is £3,000. 

Interest added to savings in the HBISA is tax-free. At the time of writing, it was possible to earn up to 4% per annum on savings in a HBISA.

The bonus is only available for properties costing less than £250,000 (or less than £450,000 in London). The property does not need to be a new build starter home – any residential property qualifies. 

The property can be purchased with the aid of a mortgage. The Government offer mortgages through their ‘Help to Buy’ scheme and this can be used for the purchase. However, while this may be beneficial it is not compulsory and any residential mortgage is permitted. It is also permissible to boost the deposit saved via the HBISA with other funds. 

To ensure that the funds are actually used as a deposit on the saver’s first home, the bonus is not added to the account each year. Instead, it is made available as part of the home-buying process. When the saver is ready to buy his or her first home, he or she must close the Help to Buy account and transfer the funds to another account or to a solicitor’s account. The saver will receive a closing letter from the bank or building society with whom they held their HBISA. This must be given to the solicitor or conveyancer acting for the saver in the home purchase. The solicitor or conveyancer must be registered for the ‘Help to Buy’ scheme, and will use the closing letter to apply online for the bonus as part of the buying process.

A solicitor may charge for applying for the bonus – check the fee for this before engaging a solicitor. 

A saver is only able to open one HBISA. This can be contrasted with the rules for cash ISAs, which allow savers to open a new cash ISA each year. However, although each individual can only have one HBISA, they can move it to a different provider to take advantage of better interest rates.

The rules do not allow a person to contribute to a cash ISA and a HBISA in the same tax year. However, it is possible to open a HBISA if you have a cash ISA from an earlier tax year (as long as you don’t add funds to both the cash and HBISAs in the same year). 

If you open a HBISA and decide not to use the savings for a deposit for your first home, you still benefit from tax-free interest, but you do not qualify for the Government bonus.

The Government bonus on the HBISA is generous, and it is worth opening an account if you have not previously owned an interest in a property, even if just on the off chance that you may buy a home before 2030. Parents or grandparents can give their children money with which to save, but the child must open the account in their own name themselves.