Getting on the property ladder in 2015 is harder for many people in Britain than it has ever been.
An indication of how hard is the latest roll out of the government’s ‘Help to Buy’ policies, the Help to Buy ISA, which offers attractive cash incentives to people saving for a deposit.
This blog is focused on explaining the complexities of the ISA and showing who it will work for and how they can get the most out of it as a savings opportunity.
Who is it designed to help
The Help To Buy ISA has been set up as a tax free saving scheme for first time buyers alone, so if you already have a property (or two) you can skip to the next article now.
This is exclusively for people getting on to the ladder (though if you know someone in this predicament and other than yourself, please read on, this advice might help secure them their first home).
The Help To Buy ISA is not dependent on income levels, anyone can open one irrespective of their earning potential, they simply have to be a first timer.
If you have owned a property previously but now you rent or live with parents and are hoping to get back on to the ladder, you won’t be eligible, as stated above, this is for first time buyer savings.
How do ISAs work?
Each month savers can deposit up to £200 in their ISA, which will be tax exempt.
The government will add twenty five percent of the total monthly savings in addition to the amount savers put in.
Therefore a saver who regularly puts away £100 will receive £25 from the government to go into the tax free account.
In the first month that the account is open, your total allowance is a one off of £1,200, meaning that the government’s contribution will be £300.
The government will invest a total of £3,000 in the ISA, meaning that savers who get the full amount from the government, must have invested £12,000 of their own money in the ISA.
Once you buy your first property the government will pay the tax free money they have invested off the value of the mortgage, directly to the lender.
This means the money from the government never ends up in your bank account accruing interest unfortunately.
How do I apply?
You can open a Help To Buy ISA in the autumn of 2015 and they will be available through all high street banks and building societies.
The actual interest rates offered by lenders will differ (as is the way with the current market for regular ISAs), and there will inevitably be a highly competitive market for First Time Buyers to take advantage of.
If you already save using an ISA then you will not be able to take advantage of the Help To Buy ISA as well.
The policy is only available for people buying a property up to the value of £450,000 in London or £250,000 throughout the rest of the UK.