What use is the HTB ISA really?
According to Hometrack, property prices rose on average by 6% in the last year alone, and with Zoopla stating that the average price for a house is just shy of £300k in Bristol, is it really worth having a help to buy ISA that only allows you up to £250,000 for properties outside of London?
Designed to help first-time buyers get onto the property ladder, it enables them to put up to £200 a month into the account, any interest they receive is then awarded tax-free. In the first month, the ISA allows potential buyers to put in an additional £1000. When the time comes for buyers to purchase a home, the Government tops up the ISA with a 25% bonus, which is also tax-free. The bonus cannot exceed £3000, meaning the most that can be earned tax-free stands at £12,000. To help make sense of the ISA which has confused many and been heavily criticised by some, we’ve put together some basic pros and cons surrounding the account…
It’s free of tax. As previously stated, the ISA will allow anyone to earn up to £12,000 without having to pay tax.
For anyone especially eager to purchase their first home as soon as possible, it’s available to anyone sixteen or over. Meaning that, from sixteen, savers can start putting money aside for their dream home, it’s only for first-time buyers though, so they can’t have owned a house, or even part of one, before.
Individuals get their own account. This is perhaps one of the most overlooked benefits of the ISA, and it’s a pretty significant one, especially if you’re buying as a couple because you’d potentially be able to save £24,000 as part of the ISA, which would result in a £6000 bonus.
Allows buyers to choose their provider. Plenty of high street banks are offering the scheme, including Barclays, Lloyds, NatWest, Nationwide and more. Interest rates vary between all of them, which helps to keep the ISA as competitive as possible.
The ISA can switch between providers. If at any time over the course of having the ISA, the rate with one provider becomes less than competitive, owners of the account can perform an official ISA transfer, and move the ISA over to a more competitive provider.
The not so good
The cash raised cannot go towards a deposit. This is one of the biggest drawbacks of the scheme. With the majority of first-time buyers not being able to raise a deposit, the help to buy ISA is actually of little help to them. This is because the tax-free bonus only gets paid when buyers complete on a property. That means the initial deposit will have to be raised beforehand.
The monthly contributions limit. If you want to significantly reduce your mortgage amount, the monthly limit on the ISA may be a particular bone of contention. Savers can put in up to £1200 in the first month, but after that there’s a £200 limit in place. That means it will take a rather long four and a half years of savers putting in £200 a month to get the government’s £3000 bonus.
Savers can actually make more with a regular ISA. Thanks to the limits on the help to buy ISA, only £2400 can be saved each year (not including the extra £1000 first month deposit). With a regular cash ISA, however, savers can put in up to £20,000.
Confused? You’re not alone. As an independent mortgage broker and mortgage advisor, we can help you make sense of all the options available to you. So, if you’re a first-time buyer and want to take steps towards securing your first home, please don’t hesitate to get in touch.