First-time buyers are able to use one of the government schemes Lifetime ISA or Help to Buy ISA in order to help them save up for a house deposit. A Lifetime ISA account can only be opened by savers aged between 18-40 and allows you to save up to £4,000 each year towards a first home or retirement, while the Help to Buy ISA is intended to boost the savings being accumulated by those buying a first home.
What is it?
The Lifetime ISA offers under 40s the opportunity to save and receive a government bonus of up to £32,000 towards your first home or retirement by saving up to a maximum of £4,000 per year until the age of 50. The accumulated savings, interest and bonus can be used towards a deposit on your first home of up to £450,000. The Lifetime ISA account is tax-free and can be as cash savings, stocks or shares investing. The accounts are available to each first-time buyer, not each household, so for couples looking to buy property together, both of you can save.
How does it work?
The government contributes a state bonus of 25% to your savings, so if you save the maximum of £4,000, at the end of the tax year you will receive £5,000. In order to receive the full state bonus of £32,000, you would need to open a Lifetime ISA at the age of 18 and deposit £4,000 in it each year until you are 50.
How can you be eligible?
In order to be eligible for opening a Lifetime ISA account, you must be a UK resident aged between 18-40 years.
Help to Buy ISA
What is it?
For individuals looking to buy their first home costing up to £250,000 (or £450,000 if the property is in London), the Help to Buy ISA is available. Individuals can save any amount up to £200 per month and earn tax-free interest in the form of a bonus of 25% from the government.
How does it work?
The amount you will need to have saved in your ISA before you can claim your bonus is £1,600 as the minimum government bonus available is £400. The maximum bonus you can receive is £3,000, and you will ned to have saved £12,000 in order to do so.
A Help to Buy ISA account is available to each first-time buyer, not each household, so if you are buying with someone else, you could receive a government bonus of up to £6,000.
In order to be eligible for a Help to Buy ISA, you must:
-Be a UK resident aged over 16 years
-Be a first-time buyer who does not own any property anywhere in the world
-Be looking to purchase a house costing up to £250,000 (or £450,000 if the property is in London) in which you will live
Once you are in the process of buying your first home or flat, your conveyancing solicitor or conveyancer can apply for you to receive the government bonus.
How much can you save?
Although the account has a monthly-deposit maximum of £200, your very first deposit can be up to £1,200, meaning that you can earn an initial bonus of up to £300. The Help to Buy ISA is designed for regular saving, but there is no commitment to make deposits into the account; so if there are certain months when you can’t afford to save £200 or anything at all, that’s fine. You can also withdraw cash from your Help to Buy ISA account anytime between exchange and completion to help contribute towards your deposit.
Remember that the Help to Buy ISA account is a cash ISA, and this means that you cannot invest money into another cash ISA within the same tax year.
How do you receive your government bonus?
You will be able to receive your government bonus after completion on your desired property. You will need to inform your Help to Buy ISA provider that you will be closing your account and they will produce a closing letter for you which you will give to your conveyancing solicitor. Your conveyancing solicitor will then apply for the ISA bonus on your behalf through an online portal, and you will be charged up to £50 plus VAT for this service. It is important that you inform your ISA provider that you are closing your account and do not simply withdraw all of the money from your account because without the closing letter you will not be eligible for the ISA bonus.