As we know, the UK government subsidizes up to 130 billion pounds for Help to Buy. It is a program that provides loans to people who want to buy a new home in the UK. All the residents of the UK who are planning to purchase a house or apartment and do not have too much deposit can take advantage of a loan. Currently, banks in the UK offer a loan for an apartment, where mortgage is low, but only to those who have managed to accumulate a deposit amounting to 30% or 40% of property value. Unfortunately, in practice it turns out that most buyers do not manage to save so much and they are forced to raise loans, so co-financing to the apartment is very helpful. The current average cost of buying property in the UK is £ 288,000. If you do not know how to shape the housing prices in the UK you should be sure to check the article describing the house prices in the UK.
Help to Buy ISAs – what changes and for whom will it bring?
As we know, the program started in autumn 2015 and it is aimed at first time buyers or people who had never bought the property. Using the program is similar to conduct ordinary cash ISA account, but the type of regular saver. That means that we will pay a certain amount of money on a deposit every month. Here, when we save needed money for a deposit and apply for a mortgage, the government will pay us the equivalent of 25% of the accumulated contribution – we will get the money like a gift, absolutely for free.
How does it work?
With the launch of this program the government provides help for people, who have difficulty in meeting the deposit and therefore also introduces a requirement of the time. It will hinder to participate in the program to people who already have money. Generally speaking – Help to Buy ISA is the kind of individual savings accounts that from standard ISA accounts vary 25% surcharge, which will complement the Government, in order to collect the amount of deposit required by the bank providing the mortgage. To open the account you must meet one basic condition to be “First Time Buyer” that is the program, which is directed to people who have never had real estate – both in the UK and any other country. In this way we can save money on deposit, even if you plan to buy a house with someone – with a spouse who owned the property. And, of course, only one ISA account can be opened within one year (tax).
Help to Buy ISA in practice
- £1.000 – maximum amount to open an account
- £200 – maximum monthly payment
Here, while following the upper limits, after four years of account management, we can save up to around £ 12,000 (including interest charged by the bank) and the government bonus will be £ 3,000. So in total to allocate to the deposit remains £ 15,000. The amount may not look stunning, but for people starting buying an apartment or house in the distant future, the program Help to Buy ISA may be more than helpful. Certainly the government bonus in addition to the financial bonus is to mobilize regular savings. However, we must remember here that the government bonus will not be paid in cash, but as a voucher to cover the missing amount of the deposit, which can be realized only when buying a house, moreover, house or apartment purchased under this program may not be new and it can come from the secondary market. The value of the property itself must not exceed £ 250,000 or £ 450,000 (for London) and there are also no restrictions as to the type of mortgage.
We cannot open an account Help to Buy and plain account of the ISA in the same tax year. Only one person can open one account of this type, at least in contrast to traditional ISA accounts where we can open new each tax year. But as in the case of traditional ISA, it will be the possibility to “transfer” accounts between banks.
Is it really worth to interest in this program?
It seems that considering the limitations of the program – a subsidy for housing – it is an interesting proposition. Even if we have already saved money for a deposit, but we are not ready, then it is worth just to put money on the account every month. When investing the cash elsewhere, we will be quite difficult to get a higher return, but on the other hand, there is no guarantee that real estate prices will not rise faster than our savings along with the bonus. It is also worth considering.
,,What the buyer gets and whether he really gains?”
First of all, for the buyer of the property the difference comes down to the fact that it will be possible for him, with the acquisition of real estate even as little as 5 percent of his own contribution. Of course, much depends on the banks – because it is for them to decide who participates in the program. For now, banks such as NatWest, RBS, Bank of Scotland and Halifax Lloyds Bank and TSB and decided to Help to Buy ISAs and still growing new ones. In addition, banks make loans to continue relying on standard analysis, including financial status and credit history of the borrower. And critics of the program fear that it will increase a sharp rise in property prices. In their view, the problem is in the fact that in the UK there are too little built houses, flats and the lack of available, affordable real estate price increase the prices. Currently, madness to buy houses on the giant loans ended sadly when the US credit bubble burst.
Whether apart from subsidies from the government, money for Help to buy ISA will be further interest rate?
Opening the account we will receive both a top-up from the government and the interest from the bank and its amount will be determined by the bank, of course, we can choose products offering a higher interest rate.
Benefits of Help to Buy ISAs:
Help to buy ISA was started in autumn 2015 and it is a proposal for people who want to buy their first property, otherwise it is just – a subsidy for housing,
- government subsidizes 25% of the amount of money on the account
- the first payment on account may amount to a maximum £1,000
- we can pay up to £200 monthly
- maximum amount in the account is £12,000. This means that the received bonus will not be more than £3,000
- the program can be combined with other government assistance programs like: Mortgage Guarantee and Equity Loan
Drawbacks and limitations of Help to Buy ISAs:
- we can only pay £ 200 to get the maximum bonus and we have to keep the bill for 55 months or about 4.5 year- assuming that someone pays £1,000
- the program will be available until 30 November 2030
- program only applies to buyers, who buy an apartment for the first time. You cannot even have your own property abroad
- You can have only one account
- if you have already opened ISA account this fiscal year you have to wait to the next year or transfer funds
- voucher should be implemented 12 months after the closing of accounts
If you look more information, you should check the government website: https://www.helptobuy.gov.uk/help-to-buy-isa/how-does-it-work/
Many other banks pay approx. 2% AER interest rate and it is clear that account in Halifax is worth attention if you want to buy your first property. Also in the last entry on the blog I wrote about the best accounts in England and also the account in Halifax is one of the best in the UK.
Other methods of buying a house with the help of government
It is also worth noting that for people who do not earn a lot and buy a house by other methods can be a problem, this Shared Ownership option can be very helpful, because we pay a small deposit. Adviser on mortgage will calculate what percentage of the house we will buy. You can usually buy between 30 and 75%.