There is less than a week to go until the Help to Buy ISA – a savings scheme with a cash bonus for first-time buyers – is closed.
While there is still a small window of opportunity to open the account before it’s no longer available for new customers on November 30, first-time buyers are being offered advice on what to do if they miss the deadline.
The Help to Buy ISA is a savings account which allows first-time buyers to put money away for the deposit on their home. As well as earning interest, savers also benefit from a 25% bonus at the completion of the house purchase.
So, for every £1 put into the savings account, the Government will give you 25p. The maximum amount savers can put away each month is £200 and the bonus ceiling is set at £3,000.
Who has the Help to Buy ISA helped?
Since it was launched at the end of 2015, take up of the scheme has been strong. Indeed, its popularity has grown over the years with areas such as Leeds, Birmingham, Sheffield, Manchester and the City of Bristol benefiting the most, according to a study by comparethemarket.com.
Meanwhile, in more affluent areas such as the City of London, Kensington and Chelsea and South Bucks there was little or no take up.
When it came to the ages of beneficiaries, the highest take up was in the 25 to 34 age group to whom over two thirds of all bonuses were paid out.
Laura Suter, personal finance analyst at investment platform AJ Bell, said the ISA had helped with the purchase of more than 234,000 properties, while more than 310,000 bonuses were paid.
“But along with Personal Equity Plans, Tax Exempt Special Savings Accounts and Child Trust Funds it has been consigned to the graveyard of financial products,” she said.
“If you’ve already opened a Help to Buy ISA you can keep the account and have a decade to use it and claim the bonus.
“But if you didn’t get in before the deadline then the Lifetime ISA is your only option to get free Government cash to boost your coffers for a house deposit.”
What to do if you missed out?
As Suter mentioned, the only other option available in order to save for a deposit with a Government bonus is the Lifetime ISA.
This allows you to save up to £4,000 every year with the Government paying 25% as a bonus, offering you the potential to receive up to £1,000 a year extra.
It’s available to first-time buyers to help them buy their first home but it can also be used as a retirement saving vehicle.
There are fewer Lifetime ISA accounts available at the moment and interest rates are, on average, lower than their Help to Buy counterparts. Cash Lifetime ISAs are currently available from Moneybox, Nottingham Building Society, Newcastle Building Society and Skipton Building Society.
What to watch out for…
What’s more there are several pitfalls to watch out for:
Age limit
You must be over the age of 18 but under 40 if wish to open the Lifetime ISA.
Opening an account
Lifetime ISAs are opened via banks, building societies or other providers. However, HMRC – which administrates the bonus – does not deem the account ‘officially’ opened until there is a deposit. So if you are rushing to open the account before your 40th, make sure you deposit some cash – even £1.
The money must also be deposited in the same tax year the Lifetime ISA was opened. This means if you open it now, you have until 5 April 2020 to put the money in before it’s officially opened.
Check your details
Make sure you update your details for your Lifetime ISA if you get married, for example. This is because when your Lifetime ISA provider claims the bonus it wills submit details it has on you and if these don’t match it will not pay up.
Suter said: “It may seem like a small issue, but it’s affected hundreds of cases we’ve seen, and can mean there are delays in you getting your hands on your bonus.”
Choosing an investment
Suter warned you can only open either a cash Lifetime ISA or a stocks and shares Lifetime ISA in the same tax year – not both!
“If you’ve accidentally opened two Lifetime ISAs, you’ll keep the first account you opened and the second will be closed, with any money returned to you,” said Suter.
“Frustratingly for some savers this rule is rigid, regardless of how much you’ve paid in. So you could have paid £10 into the first Lifetime ISA and £3,990 into the second, but the second one will still be closed.”
Transferring money
Suter explained you can contribute up to £4,000 into a Lifetime ISA each year. If you transfer money in from another ISA, it will still count towards this limit. The only exception is where you are transferring from one Lifetime ISA to another Lifetime ISA.
Receiving the bonus
The 25% Government bonus on the Lifetime ISA is paid monthly. However, because of the way the system is administrated it can sometimes take as long as six to eight weeks to receive the bonus.
This is no problem if you are still saving for you home. However, if you are about to purchase your property it’s worth bearing in mind.
Suter said: “If you’re currently in the process of buying a house and had banked on the latest month’s bonus money to go towards your house purchase you need to check your dates and make sure it will reach your account in time.
“If it doesn’t, the money will either have to stay in your account until you reach age 60, or you can withdraw it and pay the 25% exit penalty on that cash.”
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