People struggling to buy their first home are given a helping hand with the Help to Buy Isa free from tax and up to 4% interest.

From 1 December the new Help to Buy Isa aims to help potential buyers own their first home with the government bonus adding 25% up to £3,000 per person and up to £6,000 for couples.

Banks and building societies are offering up to 4% interest on a Help to Buy Isa account and the government will add £400 for balances of £1,600 or more.

Of the fourteen providers, Halifax are offering 4% interest on their account which is higher than on standard rates for savings while others are offer 2% such as Nationwide and NatWest.

How do they work?

To qualify you must be a UK resident, a first time buyer and never owned a property and you cannot have another Isa account in the same tax year.

Unlike the Help to Buy or new London Help to Buy schemes the Isa is not available to home movers.

In addition, properties must be purchased with a mortgage and cannot be a second property. The maximum purchase price is £250,000 or up to £450,000 in London.

The Help to Buy Isa allows a first time buyer to open an account and deposit up to £1,000 as a lump sum. Up to £200 a month can be paid up to a maximum of £12,000.

Only when you are buying a home will the government pay a bonus 25% or up to £3,000 per person and up to £6,000 for a couple.

This means by saving £12,000 each person would have £15,000 for a deposit after the bonus or a couple together would have £30,000.

You must have at least £1,600 in your Help to Buy Isa to qualify and the minimum the government will pay is £400.

Accounts can be opened up to November 2019 and continue to save and make deposits although the government bonus must be claimed by December 2030.

Home and property owners such as remortgage buyers and buy-to-let landlords are not eligible for the Help to Buy Isa.

Buying your home

A combination of rising house prices and rents has meant it is more difficult for young people to save enough for a deposit and the Help to Buy Isa was announced in the Budget by Chancellor George Osborne to assist first time buyers.

The Office of National Statistics (ONS) released data in November showing the average price paid by first time buyers for a property is £216,000 increasing 4.3% year on year.

For a mortgage from a lender a minimum 5% deposit would require £10,800. For a couple the Help to Buy Isa would allow them to save £8,640 and the government bonus would add another £2,160, not including any interest.

The Isa can be used along with other government schemes such as Help to Buy equity loan for new-build properties or mortgage guarantee schemes.

The participating Help to Buy Isa providers are Halifax, Lloyds, Nationwide, NatWest, HSBC, Santander, Barclays, Bank of Scotland, Virgin Money, Clydesdale Bank, Newcastle building society, Aldermore, Ulster North and Yorkshire Bank.

Help can come from family members as the equity release buyer can access wealth using a lifetime mortgage for the deposit to buy your home.

What are your next steps?

Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.

Learn more by using the property value tracker chart, mortgage cost calculator and equity release mortgage calculator. Start with a free mortgage quote or call us and we can take your details.

For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property for home improvements, holidays or even buy a more expensive home.

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