Martin Lewis's Help to Buy ISA advice: do this simple thing by Saturday to receive up to £3,000 from the Government
Martin Lewis has issued a last-minute warning to savers to invest in a Help to Buy ISA before the scheme closes this Saturday, November 30th.
Wannabe homebuyers can open an account with as little as £1 but will need to do so before the deadline at the end of this month.
The founder of Money Saving Expert said on The Martin Lewis Money Show last night: "This is an urgent warning for savers and time buyers – miss this and you could be missing out on thousands of pounds worth of free cash.”
How does the Help to Buy ISA work?
Under the scheme home buyers receive up to £3,000 from the Government to put towards the cost of buying a home.
Help to Buy ISAs are offered by most major banks, although some are planning to close the scheme to new savers on Thursday in advance of Saturday’s final deadline.
You can open a Help to Buy ISA with a deposit of £1 up to £1,000. After that you can add up to £200 a month into your account.
For every pound you save the Government will add 25p, up to a maximum £3,000. Couples can each open an account and then pool their savings.
Savers also receive tax-free interest on their savings from the bank, though interest rates are low.
The current best offer, according to the moneysavingexpert.com website, is Barclays Help to Buy ISA, offering 2.58 per cent AER variable.
If you open a Help to Buy ISA now with as little as £1, you can keep it for 10 years and start saving whenever you are ready.
“Two years ago the Lifetime ISA launched – intended to replace the Help to Buy ISA. There are pros and cons of both. But time is at the essence and the clock is ticking on one,” said Martin Lewis.
"The big perk of the Help to Buy ISA is that the Government will give you 25 per cent on top for a mortgage deposit if you're going to buy a house in the near future. This is the most important thing you need to know.
"On the 30th November, the Help to Buy ISA closes to new applicants. You will no longer be able to get one."
What are the downsides to Help to Buy?
There are a number of aspects that you should be aware of:
- The deposit is the single biggest obstacle to London home ownership but the money you save in your Help to Buy ISA cannot be used for your deposit when you eventually buy.
- Instead it is paid to you on completion of your purchase, which means you can use it to reduce the size of your mortgage or to help pay for furnishings and moving costs.
- If you take out the money for any reason other than to buy a house, you forfeit any bonus payments.
- It will take more than four years to save £12,000 and receive the maximum bonus, so the Help to Buy ISA is certainly not a quick fix.
What is a Lifetime ISA (Lisa)?
Once the Help to Buy ISA closes, savers will still be able to open a Lifetime ISA, or ‘Lisa’.
This is open to 18 to 40-year-olds to save either for their first home or for retirement. Savers can put in up to £4,000 a year until the age of 50 and receive up to £1,000 a year in bonuses in return.
You can withdraw your money to buy a property, or, if you are using a Lisa as a retirement top-up, once you reach 60.
Again there are catches:
- If you are buying a property, you will have to wait a year before withdrawing your money.
- If you need to take the money out for another reason you will pay a 25 per cent charge on your savings — so you could end up with less than you’ve paid in.
- If you save the maximum £4,000 per year, and receive a £1,000 bonus, then after five years you will have saved £25,000 which, while a good lump sum, is nowhere near a London deposit. On the other hand bonuses are paid monthly, which means a Lisa can be put towards a deposit.
- Under the scheme first-time buyers are restricted to homes costing £450,000 or less, which in London is not a generous budget.