Christmas bonus for first-time buyers

First-time buyers are about to get the best Christmas present ever from the government.

The Help to Buy Isa, which launches on December 1, offers cash towards a deposit and it’s a generous amount. Under the scheme, first-time buyers can save up to £12,000 in the Isa and the government will top it up by 25 per cent.

The maximum monthly amount you can save is £200, which attracts a £50 government bonus. You can also kick-start the Isa with an additional lump sum of up to £1,000 for the first month only. The maximum bonus payable overall is £3,000. However, if a couple are saving together they can open separate Help to Buy Isas, which could bring the total amount of “free money” to £6,000.

To be eligible for the 25% extra, you need to have saved at least £1,600 which, with the government top-up, would give you £2,000. There are no limits on how long an account can remain open.

The government’s money can only be used as a mortgage deposit on properties worth up to £250,000, or up to £450,000 in London. It will be paid via the conveyancer to the mortgage lender when you are ready to buy a home. However, you are free to withdraw your own savings if you decide you don’t want to go ahead with the scheme.

The Help to Buy accounts will be available from high street banks and building societies, including Virgin Money, NatWest, Barclays, Halifax, Lloyds and Bank of Scotland.

Financial experts say the deal is a must for anyone saving to buy their first home. They also suggest that the Isa could be a great way for parents to help their children on to the property ladder and to shelter money from inheritance tax, although the account must be in the child’s name and they have to be 16 or over.

Kevin White, Head of Financial Planning at deVere, says: “In effect, it is free cash from the government and anyone who is aspiring to buy their first home would be mad not to do this.”

While the scheme will make a difference to Yorkshire’s first-time buyers, those in the south could still be locked out of home ownership.

“Even with the maximum Isa saving plus the government bonus, meaning a total of £15,000, most first-time buyers will still find that they’re £15,000 short for the average deposit,” says Mr White.

TotallyMoney.com has used Land Registry data to forecast the affordability of property for those with a Help To Buy ISA. It reveals that for those in the Midlands and North, the government’s 25 per cent tax-free top-up could offer a genuine helping hand.

Alastair Douglas, CEO of TotallyMoney.com, says: “If you want to buy in the South East, you better get swiping on Tinder. Single people using the Help to Buy ISA will be unable to purchase anything between Cambridgeshire and Dorset in five years’ time. Londoners are the real losers, with the only properties under £450,000 on the outskirts of the capital. Only 10 of London’s 33 boroughs will be affordable for couples.”

Help to Buy cash giveaway: How it works

*You will be able to open an account if you have never owned a property before and are over 16.

*The new scheme will work like a cash ISA, with tax-free interest on savings. Providers will set their own rules regarding interest rates and withdrawal.

*You can open the account with an initial deposit of up to £1,000, then save up to £200 a month after that. The government bonus is added at the end when you are ready to buy your home. Your Isa provider will give you a closing letter. You give this to your conveyancer and who can apply for the bonus online. It will then be paid direct to the mortgage lender.

*There are no limits on withdrawals if you need to access your savings.

*The minimum bonus pay out is £400 so you need to save at least £1,600 into your account before you close it. The maximum bonus is £3,000, but you need to save £12,000 to earn that which will take four years at the £200 monthly maximum contribution.

*Couples can each open an account allowing them to save up to £12,000 each, which adds up to £24,000 tax-free over four years, with a £6,000 bonus.