How to Manage Your Help to Buy ISA
Anyone who has a Help to Buy ISA can still save up £200 per month until 2029 to earn tax-free returns and a 25% government bonus of up to £3,000. New accounts are no longer available.
While savers can no longer open a new Help to Buy ISA to save for a home, those who have an existing account may be wondering what to do now in order to get the best possible return.
Here’s what you need to know about managing your Help to Buy ISA.
What is the Help to Buy ISA?
The Help to Buy ISA was introduced by the government back in 2015, aimed at providing first-time buyers with a helping hand building a house deposit.
Although no new Help to Buy ISAs were available after 30 November 2019, anyone who opened a Help to Buy ISA before that time can still enjoy tax-free returns and a bonus from the government worth 25% of what they save into the ISA, on top of any interest paid by the provider.
If you have a Help to Buy ISA, you’re allowed to save a maximum of £200 a month into your account. The government bonus is capped at £3,000, which means you need to save £12,000. Anything you save above that will not benefit from a bonus, though you will still earn interest on it.
Managing my Help to Buy ISA
The first thing to bear in mind when managing your Help to Buy ISA is that the government bonus is available until 2029. So if you have not yet built up a balance of £12,000, you may want to continue to pay into the account in order to pocket the full bonus.
In addition, while there are no new accounts being launched, you can still transfer your existing balance into a new Help to Buy ISA with a rival provider in order to secure a better return. It’s worth keeping on top of what rate of interest your Help to Buy ISA is paying and how it compares to rival accounts.
There will not be a fee for transferring your balance between accounts.
Should I transfer my Help to Buy ISA balance into a Lifetime ISA?
One of the reasons the Help to Buy ISA has been closed to new applicants is because of the launch of the Lifetime ISA, which works in a similar way.
The Lifetime ISA is a little more generous if you’re looking to buy a home. The government will again pay a 25% bonus on what you save, but you are able to put up to £4,000 a year into a Lifetime ISA, rather than the £2,400 with a Help to Buy ISA.
If you are unlikely to buy in the next year or two, and are just focusing on building a bigger deposit, then a Lifetime ISA and the larger potential bonus may provide a more significant return.
You cannot combine bonuses from a Lifetime ISA and a Help to Buy ISA.
Can I withdraw money from my Help to Buy ISA?
Yes. The money in your Help to Buy ISA can be withdrawn to pay your house deposit at completion of the purchase of a property or for other reasons.
Importantly, the bonus is paid only when the money is withdrawn to put toward the purchase of that property, and you’ll need to contact your ISA manager before you withdraw the funds. If you withdraw before contacting your ISA manager or for any other purpose than to pay your house deposit, then you will be giving up the bonus.
The money can be used for any sort of property, whether new-build or otherwise, so long as it costs less than £250,000. This cap increases to £450,000 in London.
How does the Help to Buy ISA relate to the Help to Buy scheme?
The government has launched various Help to Buy initiatives aimed at boosting the housing market in recent years.
For example the Help to Buy Equity Loan scheme allows first-time buyers to purchase a new-build home with a 5% deposit. Buyers are also given an equity loan worth up to 20% of the property’s value, on which they pay no interest for the first five years. The remaining 75% comes from a mortgage offered by one of the lenders that participate in the Help to Buy scheme. The Help to Buy ISA was one of these initiatives. If you have one, you may be able to combine it with other Help to Buy schemes.
John Fitzsimons has been writing about finance since 2007. He is the former editor of Mortgage Solutions and loveMONEY and his work has appeared in The Sunday Times, The Mirror, The Sun and Forbes. Read more