What is a Help to Buy ISA?
The Help to Buy ISA is a Government tax-free savings account designed to give first-time buyers struggling to save for a deposit a cash boost.
You can pay up to £200 a month into a Help to Buy ISA, after an initial one-off £1,000 opening deposit in the first month. And for every £200 you save the Government will stump up a £50 bonus.
The total Government bonus you can receive is capped at £3,000, which would be earned on a cash balance of £12,000. The minimum Government bonus paid is £400, which would require £1,600 in savings.
Help to Buy ISAs are restricted to first-time buyers who have never owned a home, or even part of one, before. It can be used to buy properties with a maximum value of £250,000, or £450,000 if you're buying in London.
Both the Government bonus and interest on your savings are paid tax-free. And if you are buying with a partner you can open a Help to Buy ISA each, meaning you'll get double the tax-free savings allowance and double the Government bonus.
The Help to Buy ISA can also be used in conjunction with other Government homebuying schemes such as Help to Buy and Shared Ownership.
The Help to Buy tax-free bonus is paid at the point you complete on your property purchase. This means you'll have to raise the initial deposit yourself (which is payable at exchange) and use money to reduce your overall mortgage amount and subsequent monthly repayments.
It's a loan that's linked to the rise and fall in the value of your home. If you take a 20% equity loan for example, the amount you owe will always represent 20% of the property's value.
You won't be charged loan fees on the equity loan for the first five years of owning your home.
After five years you will be required to pay an interest fee of 1.75% of the amount of your Help to Buy shared equity loan at the time you purchased your property, rising each year after that by the increase (if any) in the Retail Prices Index (RPI) plus 1%.
The loan itself is repayable after 25 years or on the sale of the property if earlier.