Last updated: 10 November 2016
At a glance
- In the March 2015 Budget the government announced a new ISA savings scheme to help first time buyers (FTBs) in the UK save for a deposit to purchase their first home. The scheme launched on 1 December 2015.
- Under this scheme, a first time buyer can save up to £200 a month towards a deposit for their first new home in a Help to Buy ISA account. There is no minimum monthly requirement. An FTB can make an initial deposit of £1,000 when opening the account to allow the FTB to start saving before the accounts are introduced.
- The government will add a bonus of 25% to the FTB’s savings (and any interest earned on those savings) on the purchase of a first home. The bonus is subject to a maximum of £3,000. So, for example, a first time buyer who saves £12,000 will receive a bonus of £3,000 from the government.
- Accounts are limited to one per person rather than per home, so joint buyers can each open a Help to Buy ISA account.
- The accounts will operate in the same way as existing ISAs, with interest accruing on a tax free basis, but will include some special features which are outlined in this summary.
- On 29 September 2016, the Chancellor announced the end of the Help to Buy Mortgage Guarantee Scheme from 31 December 2016, however Help to Buy ISA scheme is continuing and is not affected by the announced closure of the mortgage guarantee scheme.
We believe that the Help to Buy ISA is a welcome "boost" for eligible first time buyers.
As the bonus will only be paid at the point a first home is purchased, we will be closely monitoring any resulting administrative difficulties around linking the bonus payment with the mortgage application and the conveyancing processes.
We note that as the ISA account does not need to be with the mortgage provider, this also has the potential to increase administrative burdens for lenders.
Why this is important for lenders
This is a further scheme to help first time buyers. It recognises the difficulties some are experiencing in saving for a deposit in a very low interest environment.
The Help to Buy ISA can be used in combination with other Help to Buy products.