ISAs for first time buyers – a complete guide

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ISAs available for first time buyers

Buying your first home is an exciting milestone and many use Individual Savings Accounts (ISAs) to help them on their journey.

In this comprehensive guide, we’ll explore the different ISAs available for first-time buyers in the UK, including the now-expired Help to Buy ISA and the currently available Lifetime ISA that you can use a first time buyer.

What ISAs are available for first time buyers?

The help to buy ISA is currently not available but there are others.

Read on to find out what to do if you have a Help to Buy ISA and want to cash it out or want to start saving again from scratch with a scheme that’s currently available.

Option 1: Help-To-Buy ISA (expired)

The Help to Buy ISA was introduced by the UK government in December 2015 to help first-time buyers save for a deposit on their first home.

The scheme allowed individuals to save up to £200 per month, with the government providing a 25% bonus on top of the amount saved, up to a maximum of £3,000.

A help to buy ISA in the UK

However, the Help to Buy ISA is no longer available for new applicants. The scheme closed to new accounts on 30 November 2019, meaning that if you didn’t open an account before this date, you can no longer do so.

When did the help-to buy ISA end?

The Help to Buy ISA closed to new applicants on 30 November 2019. If you opened an account before this date, you can continue saving into it until 30 November 2029. You then have until 1 December 2030 to claim your government bonus.

How to cash out your help to buy ISA

If you’ve already got a Help to Buy ISA, you can continue to save into it and claim the government bonus when you’re ready to buy your first home.

Looking to cash out your ISA and buy?

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To claim the bonus, you’ll need to close your Help to Buy ISA and provide a closing statement to your solicitor or conveyancer. They will then apply for the bonus on your behalf.

Why was the help to buy ISA introduced?

The Help to Buy ISA was introduced to address the challenge of rising house prices and the difficulty first-time buyers faced in saving for a deposit. By providing a government bonus, the scheme aimed to make homeownership more affordable and accessible.

Option 2: The Lifetime Individual Savings Account (LISA)

The Lifetime ISA (LISA) was introduced in April 2017 as a replacement for the Help to Buy ISA. It’s designed to help people save for their first home or for retirement.

Here are the requirements for the lifetime ISA:

Requirement Details
Age Limit 18 or over but under 40
Maximum Annual Contribution £4,000
Government Bonus 25% on top of your savings, up to a maximum of £1,000 per year

This means if you save the full £4,000, you’ll receive a £1,000 bonus.

Unlike the Help to Buy ISA, which was only available for first-time buyers, the Lifetime ISA can be used for two purposes:

  • To buy your first home (worth up to £450,000)
  • To save for retirement (accessible from age 60)

If you use your Lifetime Individual Savings Account (LISA) to buy your first home, you must have had the account open for at least 12 months before you can withdraw the funds.

Get more information on the other schemes available to first time buyers

If you’re buying with someone else who also has a LISA, you can both use your savings and bonus towards the purchase too.

What if you want to withdraw from a LISA early?

It’s important to note that if you withdraw money from your LISA for any reason other than buying your first home (after 12 months) or after age 60, you’ll pay a 25% withdrawal penalty. This effectively reclaims the government bonus and a small portion of your own savings.

How long is a LISA available for?

The Lifetime ISA is available for a much longer time, unlike the Help to Buy ISA which had a set end date.

Ready to spend your LISA?

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You can continue to save into a LISA until you turn 50, meaning you could potentially benefit from the government bonus for many years if you’re saving for retirement.

Option 3: Cash ISA

A Cash ISA (Cash Individual Savings Account) is a tax-free savings account in the UK. It allows individuals to save cash without paying any tax on the interest earned.

A representation of a cash ISA

Cash ISAs are the last type of ISA available for first time buyers.

Benefits of a Cash ISA

The primary benefit of a Cash ISA is that the interest earned on the savings is completely tax-free. This means that the full interest rate is applied to the account balance, without any deduction for income tax.

Additionally, Cash ISAs offer flexibility, as the funds can be withdrawn at any time without penalty.

Cash ISA Allowance

Tax Year Cash ISA Allowance
2023/24 £20,000 accross all ISAs
2022/23 £20,000 accross all ISAs
2021/22 £20,000 accross all ISAs
2020/21 £20,000 accross all ISAs
2019/20 £20,000 accross all ISA

Each tax year, individuals have a £20,000 annual ISA allowance, which is the maximum amount they can contribute across all their ISAs.

For the 2023/24 tax year, the ISA allowance is £20,000. This means that an individual can contribute up to £20,000 into a Cash ISA, a Stocks and Shares ISA, an Innovative Finance ISA, a Lifetime ISA, or a combination of these accounts.

How to join ISAs together to buy one home

If you’re planning to buy a home with your partner or a friend, you might be wondering if it’s possible to combine your ISA savings to purchase a single property. The good news is that in some cases, you can join forces and use your ISAs together to buy a home.

Combining Lifetime ISAs

If you and your partner or friend both have a Lifetime ISA (LISA), you can both use your savings and the government bonus to buy a home together. To do this, you must both meet the following criteria:

  • You must both be first-time buyers
  • You must have had your LISAs open for at least 12 months
  • The property you’re buying must cost £450,000 or less

If you meet these requirements, you can each use your LISA savings and the government bonus towards the purchase of your first home together.

A house bought with a combination of ISAs

This means you could potentially have a combined deposit of up to £50,000 (£25,000 each), assuming you’ve both saved the maximum £4,000 per year for at least 5 years.

Combining Help to Buy ISAs (no longer available to new applicants)

If you and your partner or friend both have a Help to Buy ISA, you can also combine your savings and the government bonus to buy a home together. The rules are similar to those for Lifetime ISAs:

  • You must both be first-time buyers
  • The property you’re buying must cost £250,000 or less (£450,000 or less in London)

It’s important to note that the Help to Buy ISA is no longer available to new applicants as of November 30, 2019.

Get government advice on dealing with the help to buy ISA after its expiration

If you opened a Help to Buy ISA before this date, you can continue to save into it until November 30, 2029, and claim the government bonus until December 1, 2030.

Combining a Lifetime ISA and a Help to Buy ISA

If you have a Lifetime ISA and your partner or friend has a Help to Buy ISA (or vice versa), you can still combine your savings to buy a home together.

However, you can only use the government bonus from one of the ISAs, not both.

Combining two ISAs

For example, if you use your Lifetime ISA and the government bonus to buy a home, your partner or friend cannot use their Help to Buy ISA bonus for the same purchase. They can, however, still use their Help to Buy ISA savings towards the purchase.

How to cash out an ISA

When you’re ready to use your ISA savings to buy your first home, there are several steps you need to take to ensure a smooth process. Here’s a breakdown of what you need to do when you want to spend an ISA to purchase your first property.

Step 1: Notify your ISA provider

The first step is to inform your ISA provider that you intend to use your savings to buy a home.

Find a list of ISA managers approved by HMRC here

The process may vary slightly depending on the type of ISA you have.

Step 2: Provide information to your conveyancer or solicitor

Your conveyancer or solicitor will handle the legal aspects of your home purchase, including applying for the government bonus (if applicable) and transferring the ISA funds to the seller.

Step 3: Ensure the property meets the ISA criteria

To use your ISA savings and receive the government bonus (if applicable), the property you’re buying must meet certain criteria.

Make sure the property you’re interested in meets these requirements before proceeding with your purchase.

Step 4: Coordinate with your mortgage lender

If you’re using a mortgage to buy your first home, you’ll need to coordinate with your lender to ensure a smooth process. Inform them that you’ll be using ISA savings and the government bonus (if applicable) towards your deposit.

A mortgage application

Your mortgage lender will likely require a copy of your ISA closing statement or the LISA declaration form to confirm the amount of savings you have available for your deposit.

Step 5: Complete the purchase process

Once you’ve provided all the necessary information to your conveyancer or solicitor and your mortgage lender, they will work together to complete the purchase process.

Your conveyancer or solicitor will guide you through these steps and keep you informed of the progress.

By following these steps and ensuring that you meet all the necessary criteria, you can successfully use your ISA savings and government bonus (if applicable) to purchase your first home.

A man who has successfully bought a house

Remember to communicate clearly with your ISA provider, conveyancer or solicitor, and mortgage lender throughout the process to avoid any potential issues or delays.

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