Should you get a Help to Buy ISA?
If you’ve made a conscious decision to save some money, it’s likely you will be paying a portion of your monthly earnings into an ISA. The interest gained via money paid into an ISA is not subject to tax, making it one of the most popular savings options available in the UK.
Simply put, an ISA lets you squirrel away cash that the taxman can’t get his or her mitts on; it doesn’t get much better than that, does it? Well, if you’re saving up to buy your first home, then perhaps it does.
The government’s new Help to Buy ISA is a scheme that, essentially, gives first-time buyers a financial boost when purchasing a home. Put away £200 a month (the maximum monthly allowance) and the government will give you an additional 25%. So, save £12,000 (the maximum total allowance) of your own money and the ISA balance will be topped up to £15,000.
It is important to note that the bonus is only available when purchasing a first home, so, should you save £12,000 and then decide you no longer wish to a buy a property, the £3,000 cannot be used for a different purpose.
Also, though some ISA providers offer ‘split accounts’, which allow individuals to pay into a cash ISA and a Help to Buy ISA simultaneously, many do not. Should your provider not offer this option, then you will not be able to pay into a cash ISA for all of the years your Help to Buy ISA is being utilised, resulting in more than £10,000 of unused ISA allowance per year.
The scheme has already proven to be incredibly popular, with approximately 140,000 people signing up since its launch in December 2015. However, is the Help to Buy ISA the right option for you, or would you be better off placing your money elsewhere?
As the saying goes, every little helps. Buying a home is often a person’s dream, though many individuals are often left frustrated by the process. The obstacle of raising a deposit fast enough relative to house prices, for example, is a key problem that numerous people encounter, and a £3,000 boost from the government will certainly come in handy.
If you are saving in any way then you may as well get some help. This ISA, coupled with other help to buy schemes where you can buy certain properties with only a 5% deposit, means the ambition of owning a home is much more achievable for some than they may initially have thought.
However, it is certainly worth pointing out that there are a few cons to cover. The maximum sum available is £3,000, and that can only be made use of after a minimum of 55 months (four and a half years). Buyers are also restricted in that the property’s purchase price must be less than £250,000 in the majority of the UK, or under £450,000 within London. These limits may hamper those trying to buy in certain areas, with particular reference to the south east of England.
People should also be aware that if they do not end up getting the bonus due to a reflection of house prices in their area, or their earnings increase and they subsequently buy above the threshold, then they may have been far better off saving their money elsewhere.
A lot of banks are paying lower interest on the Help to Buy ISA in comparison to their standard cash ISA because they know interest in the product is courtesy of the government’s addition, and not the interest added from the bank.
Also, there is the wider issue of the UK’s drastic undersupply of affordable housing. If supply does not increase, but demand does, then prices will continue to rise. This means that, even with government assistance, buying a home is likely to remain a challenge for the foreseeable future.
Everyone should be aware that the value of investments can fall as well as rise, and you may get back less than you invested. Also, your home may be repossessed if you do not keep up repayments on your mortgage.
If you are contemplating opening a Help to Buy ISA, or would like additional guidance relating to growing your money, then you could benefit from speaking to an independent financial adviser. To speak to a top-rated adviser in your area to ensure you are making the most of your money, search the VouchedFor database.