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What are Help to Buy ISAs?

The governments new 'Help to Buy ISA" is launching on December 1. Today's post will explain what this new financial product is and who is is best for. 

ISA are Individual Savings Accounts they allow for tax free savings up the cap set by the government each financial year.  The Help to Buy ISA is very similar to a cash ISA but there is the opportunity for a bonus. Individuals can save up to £200 a month with an initial deposit of up to £1000 and received a 25% bond.  The maximum that can be saved and receive a bonus is £12,000 and this is topped up to £15,000 when the saver goes to buy a home. 

The property must be less than $250,000 in London or £250,000 elsewhere. The money must go towards a deposit and not other fees to be able to receive the bonus. 

It is still not clear how interest rate will fluctuate for these ISAs as It was seen with Junior ISAs that shortly after their introductions rates decreased significantly. 

It is also not clear how much of your overall ISA allowance you can contribute to Help to Buy and if you will be able to contribute beyond the £12,000.

The ISA is individual, not based on your household. So both you and your partner (or whoever else you plan on purchasing a house with) could take our a Help to Buy ISA provided that you are both first time buyers. 

Be aware you cannot open a a cash ISA and HTB in the same tax year. If you have a cash ISA opened this year then it will need to be closed and the balance transferred before opening up a HTB or just wait until the next financial year to start.  Though some banks are offering a split ISA allowing you to hold a cash and HTB ISA at present Nationwide offers the best interest rate for this product. 

Several banks have signed up to offer the product. Halifax as of present offers the best rates at 4% interest and you are able to transfer the balance of a cash ISA towards the £1000 deposit. 

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