If you’re one of the many people that missed the deadline, have a read through the first-time buyer guide to look at the other schemes that could help you buy a home, or speak to a mortgage advisor
How does the Help to Buy ISA scheme work?Savers can potentially enjoy a government cash bonus of up to £3,000 towards the cost of their deposit for their first home, through a Help to Buy ISA. Open to first-time buyers exclusively, the scheme was created to make it easier to get onto the property ladder.
Rising average house prices have resulted in a longer wait for many hopeful first-time buyers, who have, on average, needed to save £57,000 in 2021 to secure the mortgage and the property they wanted.
A Help to Buy ISA can help to cut that wait down. Though the scheme is no longer open to new applicants, if you signed up before the closing date, you can still buy your first property with the benefit of a 25% bonus on top of your own savings.
How much can I save into an ISA a month?
If you have an open Help to Buy ISA account, you can save up to £200 a month until the 30th of November 2029.
- The maximum amount you can save and still receive the 25% top-up is £12,000, so potentially, you could save £12,000 and receive £3,000 as a bonus, giving you a chunky deposit of £15,000.<
- You can have more than £12,000 in your account, and accumulate interest, but you won’t receive a government bonus of more than £3,000.
- You’ll need to have savings of at least £1,600 in the ISA at the time of closing the account, to benefit from any bonus at all.
Saving with a Help to Buy ISAAccording to figures released by the Treasury, 410,075 property completions have been supported by the Help to Buy ISA since it was first launched, with an average bonus value of £1,073*.
Essentially, for every £200 you can save, the government will give you £50. Remember, you’ll need at least £1,600 of your own to be eligible for the top up. The table below shows how this works in practice.
Government top-up (25%)
£1,600 (minimum amount you can save before you receive a 25% bonus)
Can I use the interest earned in my ISA to qualify for the bonus quicker?Banks differ but typical interest rates for Help to Buy ISAs range between 0.75-2.5%.
So, hypothetically, if you were just below the £12,000 maximum threshold but then the interest earned on your account pushed you to that figure, you might think that you’d qualify to apply for your £3,000 bonus.
While you’d receive the top up on completion of the mortgage, the amount would be based on the savings you’d accumulated, excluding interest. That’s because the bonus is paid out based on the savings deposited into the account i.e. the £200 a month maximum a month, not on the savings amount plus interest.
Things to consider about the scheme
- The 25% top-up bonus from the government won’t be paid until the mortgage deposit is required by the lender upon completion
You can withdraw your money at any time but bonus funds will only be paid out based on money held in the account.
The bonus must be used towards your property’s completion, not your solicitors fees, removal fees, a new car or a last minute trip to South-East Asia.
- The property you buy must be valued at a maximum of £250,000 (or up to £450,000 in London).
- You can’t buy a property through the scheme with the intention of letting it out and not living there and it must be the only home you own.
- You don’t have to pay it back. The government bonus isn’t a loan.
- The money saved in the account is tax free, so you could benefit from growing your money (up to £12,000) without having to pay tax.
Can I get a Help to Buy ISA mortgage with a 5% deposit?Possibly as there are lenders that provide mortgages with 5% deposit requirements, however, better interest rates are usually reserved for deals which have higher deposit requirements. Being able to pay a larger proportion of the property's market value upfront can open up your choice of lenders, which could help you find a cheaper or more flexible agreement.
What’s best for you is what ultimately matters and if you’re keen to buy quickly, a 5% deposit mortgage could help you buy a home without the wait. Eligibility for low deposit mortgages can sometimes require a pretty good credit history without recent missed payments or CCJs.
If you don’t quite fit that description, know that you’re not excluded from homeownership but you might benefit from the help of a mortgage broker who can sift through the options and present you with the ones that are viable for you.
How to use your Help to Buy ISA towards your depositTop tip - don’t just withdraw all of your money, that’s not how it works…
Work out how much you can borrow on a mortgageThis will largely be based on your income, with many lenders multiplying an annual gross income between 4.5 and 6. So, if your income is £25,000, you could possibly borrow £125,000 if your chosen lender used an income multiple of 5.
You’ll still need to meet eligibility criteria and some lenders have minimum income requirements, though many don’t and people earning a low income are accepted with a range of UK mortgagees. You’ll need to know how much you can get on a mortgage before you can start the search for a home and then access your funds.
Ask a professional if you’re unsure. A mortgage broker can listen to what you need from your mortgage agreement, look at your income, outgoings and plans for the future and advise you on how much mortgage would be affordable, as well as which lenders would be willing to lend that amount.
Check which banks and lenders you’re eligible to apply toEligibility criteria can include a range of conditions that you’ll need to meet in order to qualify for your chosen mortgage agreement. Not all lenders are the same and it’s crucial to remember this because while one might decline someone because they don’t accept bad credit issues, another might accept that same applicant.
You can check your eligibility for a mortgage product for free, without affecting your credit report with a mortgage broker. There are hundreds of lenders in the UK.
Once you know which ones have mortgage products that might be suitable for you, you can cut out the irrelevant options and compare the ones of interest. Take your time. A mortgage is a long agreement that significantly impacts your finances.
Chose a Help to Buy ISA mortgage lenderOnce you’ve fully grasped the terms & conditions for your chosen lender’s mortgage agreement and you’re sure that you want to proceed, you’ll need to gather your documents and proof of identity, ready for a mortgage application.
Your mortgage broker will check that you have everything necessary to apply, scanning your application for anything that needs editing, correcting or signing. They’ll be the intermediary between you and the lender, so if anything needs to be updated to your application, or if the lender needs to clarify something, as your appointed professional, your broker can handle it.
It’s their responsibility to help you get approved for a mortgage that’s affordable, as well as communicate any updates about the progress of your application.
Claim your 25% bonusWith a successful mortgage application under your belt, you’ll need to let your solicitor know that you’re ready to claim your Help to Buy ISA bonus. The bank your ISA is set up with will need to know that you’re ready to close the account.
They should send you a closing letter which documents that you’ve withdrawn funds and closed the ISA. This letter should be passed on to your solicitor who can use it to send off for your government bonus. The bonus will then be transferred to your solicitor.
Can I reopen my Help to Buy ISA if my house purchase falls through?Yes, even if your solicitor or conveyancer has received your government bonus, you can still re-open a Help to Buy ISA and put the funds back
Your solicitor or conveyancer will give you a document called a purchase failure notification and should send this to your bank, confirming your home purchase did not complete.
What's the difference between an ISA and a LISA?You can withdraw your money from an ISA but a LISA only allows withdrawals after 12 months for house deposits or pension funds.
When does the scheme end?New applicants are no longer accepted for the Help to Buy ISA scheme but if you’ve already opened an ISA, you can benefit from saving tax free cash up to £12,000 and still receive the 25% bonus up to December 2030.
What are the alternative schemes?
The First Homes ProgrammeThis is another government lead scheme that incentivises first-time buyers to purchase a new build property with a minimum 30% discount. That could mean that a home value at £300,000 could be bought for £210,000.
Applications for the First Homes Programme are made via local councils who make the decision as to how much discount is awarded. Key Workers like nurses and teachers, police, serving members and veterans of the Armed Forces will be prioritised.
Help to Buy: Equity loan5% deposit mortgages can be tricky to qualify for if you have a less than perfect credit score, a low income or a high debt-to-income ratio and many borrowers find that they’re only eligible to apply with lenders that ask for higher deposits.
To help borrowers boost their deposit, the government lends up to 20% (40% for London) of the cost of a newly built property while the borrower deposits just 5%. The loan is interest-free for 5 years and is paid alongside your mortgage.
You can learn more about the current scheme that ends in March 2023 in our Equity Loan guide.
Can I get an Equity Loan as well as apply for a Help to Buy ISA bonus?You can apply for a Help to Buy: Equity Loan, alongside receiving the 25% bonus on top of your savings through a Help to Buy ISA. That could help you boost your deposit even more so, however, this won’t be the right route for everyone as an Equity Loan is an additional debt that will require repayment
Calculate how much your repayments would be on top of your mortgage and any other expenses you’ll have. Avoid applying without first checking if you can afford the repayments - that’s where a mortgage broker can help you.