Starting from December 1 the new help to buy ISA will become available.
This scheme allows first time buyers saving for a deposit the opportunity to put away £200 per month into a dedicated ISA.
The government will then top this up by 25 per cent to a maximum of £3,000.
You are also allowed to open the account with a maximum one off sum of £1,000.
If you are buying as a couple you can both have an account, which could give a potential maximum boost of £6,000 towards a deposit for a first home.
To qualify for the full bonus you need to have saved £12,000 but saving more will not increase this amount.
Also you need to save a minimum of £1,600 before you get any bonus which in this case is £400 taking your savings to £2,000. The help to buy ISA is only to be used for properties under £250,000 or £450,000 if the property is in London, and you don’t have to apply for a help to buy mortgage to qualify.
Most large banks and Buildings Societies are understandably offering these schemes that I believe will not be offering high interest rates on the amount saved.
But if first time buyers save the maximum for four and a half years they will have received the valuable £3,000 bonus. I believe that these schemes are good for people who want to purchase in the medium term, but have much less value for first time buyers who want to buy in the next year or so.
Also it should be noted that you can’t have a help to buy ISA in the same tax year as a cash ISA as you have to choose which one is most beneficial for you.
The government has now confirmed not just the bonuses that will be added to the loan but also the process for claiming it. This involves contacting your ISA provider when you are ready to purchase and you will then receive a closing letter from the ISA managers. At this point the first time buyer gives the letter to the solicitor who applies for the bonus. This is then added and then the solicitor applies for the money and completes the purchase.
Overall I believe that the scheme nicely boosts first time buyers savings but I do feel that it will have limited appeal due to the restricted amount you can save each month. I think that if the maximum amount you could save was boosted to £500 per month it would reach a much wider audience.
These people would be able to cash out after say one year with a bonus, and potentially have enough from savings for a good deposit as always for the first time buyer it is worth taking advice from an independent financial adviser about the schemes available from December 1 to enable you to get the best deal.