New “Help to Buy: ISA” Announced in Budget
The Government will contribute up to £3,000 tax free to first time buyers in a new “Help to Buy: ISA”. The state will contribute £50 for every £200 saved.
The maximum initial deposit is £1,000, topped up with £250 be the government. Subsequent monthly deposits up to £200 will have £50 added by the chancellor. There is no minimum monthly deposit.
The bonus will be calculated and paid when you buy your first home so it looks like there will be not interest earned on the governments contributions. The minimum bonus payout by the government will be £400 – so unless you need to pay in at least £1,600 to receive any top up bonus from the state.
It will take 55 months (over 4.5 years) of saving £200 per month to collect the maximum government bonus of £3,000. It would take longer if you save less per month or don’t save every month but you can take whatever bonus your owned at any time, you don’t have to wait until you’ve accrued the maximum.
There is a cap on the maximum value of the property it can be used to purchase – up to £450,000 in London or £250,000 anywhere else in the UK. There doesn’t appear to be any restriction on how soon a property purchased with an ISA can be sold. Buy to let properties are not eligible, though presumably you could live in it for a short period to circumvent the restriction.
If two or more people are buying the home they can each use their own ISA. It’s one per person not one per property.
Account holders must be aged 16 or above and must be first time buyers. You’ll need to supply your National insurance number as you do for other flavours of ISA products.
Currently the Help to Buy: ISA can only be opened within 4 years of the start of the scheme. Its no known whether this window may be expended and could depend on who wins the next general election. There is no limit on how long the account can remain open.
You won’t be able to subscribe to both a “cash ISA” and a “Help to Buy: ISA” in the same tax year.
Recent falls in interest rates have done nothing to help savers but George Osbourne claims the new ISA will help 1st time buyers by reducing the time required to save up for a deposit. The Median average deposit in London is approaching £70,000 and the average deposit under £30,000 else where.
The operational details will be finalised following discussions with industry and “The Help to Buy: ISA” will be available through banks and building societies. Expect to have to switch your new ISA between providers to chase introductory interest rates.
Initial public reaction is split between support and concern that it may contribute to house price inflation for typical first time buyer homes since it potentially increases demand without affecting supply.