Help to Buy ISAs launch paying up to 4% interest
Written on 1 December 2015
First-time buyers looking to save for a deposit can open a Help to Buy ISA from today. These tax-free savings accounts, which pay a government bonus of up to £3,000, will be offered by a range of banks and building societies including Barclays, Lloyds Banking Group, Nationwide, NatWest, Santander, Ulster Bank and Virgin Bank.
They’re expected to be popular: almost half (48%) of 2,000 first-time buyers surveyed by Halifax said they expect to open an account.
“The Help to Buy ISA is a no-brainer for anyone saving for a home for the first time.
Nothing comes close to the fact they’re adding 25% on top of both what you’ve saved and the interest on the first £12,000 – giving a maximum bonus of £3,000,” says Martin Lewis of MoneySavingExpert.com
You can save up to £1,200 in the first month and then £200 a month after that. If you save the maximum amount allowed, it will take four years and seven months (ignoring interest earned) to save enough to be eligible for the maximum bonus.
How Help to Buy ISAs work
Help to Buy ISAs are just like ordinary savings accounts but with a tax-free wrapper which means any interest you earn is paid tax free. However, they come with a special extra feature - when you come to use the money you’ve saved to buy a home, the Government will top up your contributions and any interest you’ve earned by 25%, up to a maximum of £3,000 on £12,000 of savings.
- The accounts are available to UK residents who are 16 or over and can be opened between 1 December 2015 and December 2019.
- In the first month you can pay up to £1,200 into the account. After that you can save a maximum of £200 a month.
- Couples buying a home together can both have a Help to Buy ISA, taking the maximum bonus available to them to £6,000.
- Importantly, you’re free to shop around for the best mortgage for you – you don’t have to get a mortgage with the Help to Buy ISA provider.
Our guide on Help to Buy ISAs has more detail on how they work.
Competitive interest rates
Halifax’s Help to Buy ISA pays 4% interest. Nationwide, NatWest and Ulster Bank will pay 2% but, unlike Halifax, will allow you to pay into their cash ISA at the same time up to the annual ISA limit of £15,240. Santander will pay 2% to its 1|2|3 World and Select customers but 1.5% to everyone else. These rates are variable so could go up or down in the future. Other providers are still to announce their rates.
These rates compare well to the best cash ISA rates which range from 1.75% for an instant access ISA to 2.55% for a five-year fixed rate, according to Which?
Help to Buy extended for Londoners
The Chancellor announced in his Autumn Statement last week that the current Help to Buy equity loan scheme will be extended for buyers in London from early 2016. Under the scheme, which is available for new-build properties only, London homebuyers with a 5% deposit will be able to apply for a five year interest-free loan of up to 40% of the value of the property. This is double the 20% loan allowed in other parts of the country.
For more information on Help to Buy equity loans, take a look at the Government’s Help to Buy website.
Help buying a home
Our guides in our Mortgages and Homes section contain plenty of useful information if you’re looking to buy a house, including choosing a mortgage and more.