By Johanna | Edited by Guy Updated July 2015
If you're a wannabe first-time buyer, the Government will give you a cash boost towards buying your first home if you save into a new type of ISA.
Under the new Help to Buy ISA scheme. which launches on 1 December 2015, you can save up to Ј200 every month and the Government will add 25% on top (so Ј50 on Ј200). You can also save an additional Ј1,000 when you first open it, meaning you can save Ј1,200 in the first month (that will have Ј300 added on top of it).
The minimum you need to have saved to get the bonus is Ј1,600 (so a Ј400 bonus), and the maximum the Government will contribute is Ј3,000 (so that means you will have saved Ј12,000).
In many ways this is equivalent to letting you save for a home deposit from your pre-tax income as the 25% on top is equivalent to the tax a basic-rate taxpayer would pay.
The Help to Buy ISA will be available through banks and building societies and rates will be set by them and differ just as with normal cash ISAs. This means you will earn interest like a normal cash ISA as well as getting the bonus at the end.
WARNING: You can't contribute to a cash ISA and a Help to Buy ISA in the same tax year. This means that if you open a new cash ISA after 6 April 2015 (or put money in an existing one, which technically is opening a new one) you will NOT be able to open a Help to Buy ISA when they launch in December - instead you'll have to wait until the next tax year.
In this guide
Help to Buy ISA - The big questions
Who can open a Help to Buy ISA?
You need to be a first-time buyer (ie, never having owned a home before), and just as with a cash ISA. account holders must be aged 16 or over.
You can still get one of these ISAs even if you're buying with someone who isn't a first-time buyer, though they won't be able to open one of these ISAs.
Anyone can open a Help to Buy ISA regardless of how much they earn as long as they are first-time buyers.
What is the definition of a first-time buyer?
first-time buyer is someone who does not and has never owned an interest in a residential property, either inside or outside the UK.
Many people have said "I owned a property previously but now rent", "I have a shared ownership property" or "I have inherited a property" can I still open a Help to Buy ISA? And the answer is NO - you have to be a first-time buyer to open one.
Help to Buy ISAs will be available from 1 December 2015, and once they're launched, you will have four years to open it, so until December 2019.
Unlike a cash ISA where you can open a new one each tax year – you are only allowed one Help to Buy ISA (ie, from one provider). Yet you can continue to add to it each tax year.
Where can I get one and what interest rate will I get?
The Help to Buy ISAs will be available through banks and building societies and rates will be set by them and differ just as with regular cash ISAs. This means you will earn interest on it just like a normal cash ISA PLUS getting the bonus at the end.
Barclays, Lloyds, Nationwide, Natwest, Santander and Virgin Money have committed to offering Help to Buy ISAs from December 2015. But as for what the interest rates will be – it’s too early to tell.
However, Martin Lewis, founder of MoneySavingExpert.com, predicts:
“Banks that want to sell you a mortgage may well offer stronger rates for Help to Buy ISAs than normal ISAs, in the hope that they can cross-sell you their mortgages later on. This is especially likely because you can only put a relatively small amount in a Help to Buy ISA each year, so it isn’t that expensive for them to pump out loss leading rates. Only time will tell though.”
Once I choose my provider, can I switch if its rate drops?
Yes you are free to transfer between Help to Buy ISAs. So monitor the rate and if it drops go to a new Help to Buy ISA provider, open it up and ask it to transfer your existing one.
The bonus will be calculated and paid when you buy your first home – you'll get a voucher for the bonus which will go straight to your mortgage lender. So you will not get the bonus unless you buy a home.