The government Help to Buy ISA was a scheme launched in December 2015 to help get first-time buyers on the property ladder. As of 30th November 2019, you can no longer open one of these ISAs, but we know there are many of you who are still saving in them (and can keep doing so until November 2029!), so we have some information to remind you how they work, how you can close them and what the rules are around them.
How does the Help to Buy ISA work?
Basically the government has agreed to top up any of your savings by another 25%. When you initially opened your account, you could put up to £1,000 in for your first payment. For all following payments there is a maximum limit of £200 per month and you can save up to £12,000 in total.
If you were to save the full £12,000, that would mean your government bonus would be £3,000, and you would receive that money when you claim.
Help to Buy ISAs are per person, and not per household, so you can use more than one set of Help to Buy ISA funds to buy your first home if you are buying with someone else.
What can you use your Help to Buy ISA for?
There is a little confusion on if you can use your Help to Buy ISA for a deposit. The money you save in your ISA, you can use towards your deposit when making an offer, and having to prove your deposit funds. The 25% Help to Buy government bonus can’t be claimed until you are further down the buying process.
As you will have already had to prove your deposit funds by the point you can close the ISA and claim the bonus, any of the government bonus money you are expecting from your savings within this ISA will not technically count towards your home deposit proof. But, can go towards your total bill at the end of the home buying process (which may include your deposit, or solicitors fees for example).
So for example, if you have saved £10,000 and are due £2,500 from the 25% Help to Buy government bonus, when you are making an offer you can only put the £10,000 forward rather than put down £12,500, as that additional £2,500 isn’t yours yet.
If in doubt of what the funds can be used towards, you can speak to your Help to Buy ISA provider, or your solicitor who will be able to provide more information.
How to close my Help to Buy ISA (and when)?
Generally speaking, the process of closing your ISA should come between the exchange and completion dates (and should only happen when you’re confident you’re near completion). However, as these dates can be quite close together, you may be left with very little time. So how long does it take to claim the Help to Buy ISA bonus?
This is really down to your ISA provider, but generally speaking this takes around a week, but can take up to 30 days to process. It is best to liaise with your solicitor throughout the process to see when the best time is to officially close your Help to Buy ISA. They may advise you to do this once your offer has been officially accepted, so they can have the paperwork ready for that bit between exchange and completion.
If you forget to close your ISA or leave it until right at the end of the process, you may delay completion on your home’s purchase.
When it’s the right time, you will need to close your account rather than removing any funds. As your government bonus is determined by how much money is in the account at the time of closure, you want to make sure all your hard earned savings are eligible.
You can close the account by visiting your bank and requesting to close your ISA (though some banks do allow you to do this online). They will then send you a Help to Buy closing statement (or closing letter) which you will have to provide to your solicitor so they can apply for the government bonus.
Your account has to be closed, and the bonus has to be claimed before you reach your completion date.
Once you have closed your ISA, you have 12 months to claim your bonus. If for some reason your home purchase falls through, you can obtain a Purchase Failure Notice (PFN) that you can take to your ISA provider, who will then allow you to reopen the ISA with all of your savings.
Do you have to pay back the Help to Buy ISA bonus?
You do not have to pay back the 25% bonus you receive when buying your first home. You can also use this ISA along with the Help to Buy Equity Loan.
You should be aware though that the majority of solicitors charge a small fee for processing the Help to Buy ISA paperwork, which may need to be factored into your house buying budget. They can only charge up to a maximum of £50 (plus VAT) to do this. Speak to your solicitor for more details.
Help to Buy ISA replacement
If you’re wondering if Help to Buy ISAs are still available, the short answer is no, they are no longer available for new applicants. However, there are Lifetime ISAs which also offer a 25% bonus for first-time buyers. As with the Help to Buy ISA, there are some limitations (you can only save up to £4,000 each tax year into it, and you have to be between the ages of 18 - 39). Find out more useful information on Lifetime ISAs here, or speak with your bank or building society.