The end is nigh for the help-to-buy ISA
First-time buyers are being reminded that they have less than four months left to open a help-to-buy ISA before the scheme closes for good. The help-to-buy ISA was launched on 1 December 2015 and supported 234,074 property purchases at an average price of £173,470 until 31 March 2019.
Statistics from the Treasury also showed that 310,658 government bonuses were paid to savers over the same period, at an average of £920. The scheme is scheduled to close to new applicants on 30 November 2019, although it remains open to existing account holders for another 10 years.
How the scheme works
The help-to-buy ISA allows first-time buyers to receive a 25% government bonus, up to a maximum of £3,000, on savings they use to buy their first home. When opening a help-to-buy ISA, up to £1,200 can be deposited in the first month, with maximum monthly contributions capped at £200. For example, a first-time buyer can save up to a maximum of £12,000, with the £3,000 government bonus bringing the total to £15,000.
It is possible to double the government bonus up to a value of £6,000, if you plan to buy a first home with your partner. The government bonus will be claimed on your behalf and added to the funds consolidated at the completion of the property transaction.
Claiming the government bonus
When you are close to buying your first home, you need to ask your solicitor or conveyancer to apply for your government bonus. Once the bonus is rubber-stamped, it will be added to the deposit being used to secure a mortgage on your first home. At the same time, at least £1,600 needs to be saved into this type of ISA to qualify for the minimum government bonus of £400.
The bonus cannot be used for the deposit due at the exchange of contracts, or to pay for any fees or any other indirect costs associated with buying a home.
Help-to-buy vs. the lifetime ISA
With the help-to-buy ISA coming to an end, the lifetime ISA offers an alternative when it comes to saving for a first home. Launched in April 2017, the lifetime ISA appears much more generous than its help-to-buy counterpart. A much higher maximum government bonus is available to lifetime ISA savers – £32,000, compared to £3,000 – and you can invest as well as save in cash.
However, savers into the lifetime ISA can only withdraw money for the purchase of their first home, if they are over 60 years old, or have less than a year to live. Withdrawals for any other reason will be subject to a 25% penalty, which applies on the value of the withdrawal. The fact help-to-buy ISA holders are not penalised in the same way may go some way towards explaining why take-up for the lifetime ISA remains subdued.
According to HMRC figures in August 2019, 166,000 lifetime ISA accounts were opened in 2017/18 – around 34,000 less than the Government’s 200,000 target. That may be partially down to lifetime ISAs only being offered by a handful of providers, whereas help-to-buy ISAs are offered more widely.
Could the help-to-buy ISA be extended?
Following Sajid Javid’s appointment as the new chancellor in Boris Johnson’s first cabinet as Prime Minister, speculation is mounting that the November deadline may be extended. Robert Jenrick, the new housing secretary, fuelled that conjecture last week, suggesting it could be announced in the next Budget.
“This is a new administration, a new chancellor. I think all options are on the table,” Jenrick told The Times last week.
“I intend to have further discussions [over an extension] with Sajid Javid in the weeks and months to come.”