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The top Help to Buy Isa rates available to first-time buyers

  • Savers can open a Help to Buy Isa from today
  • All rates on offer are currently variable-rate deals
  • Halifax offers the best at 4% 

Marc Shoffman for Thisismoney.co.uk

A new route to saving for a mortgage deposit has opened up for first-time buyers with the launch of the Help to Buy Isa.

First-time buyers can start opening the accounts from today and save £200 each month tax-free as well as getting a 25 per cent government bonus on the interest and contributions once they buy a home. 

Halifax was among the first to reveal its rates and it has also secured the top spot on the best buy tables with its variable rate of 4 per cent. Virgin Money, Aldermore, NatWest, Nationwide, Santander and Barclays have all entered the market too. Here, we reveal what’s on offer to first-time buyers and how long it will take to get the full government bonus.

Round the houses: Aldermore has matched offers from Nationwide and NatWest

Round the houses: Aldermore has matched offers from Nationwide and NatWest

How it works 

First-time buyers can open the accounts with an initial deposit of up to £1,000 in addition to the maximum monthly contribution of £200. 

The government provides a 25 per cent bonus on the interest and contributions once the product is closed. The top-up gets paid directly to your solicitor at the time of your property purchase, who sends it as part of your deposit to whichever bank you are using.

However, the government bonus is set at a maximum of £3,000 so the maximum that can be saved to benefit from the bonus is £12,000, giving you a £15,000 deposit. You can save more if you want and use money from other savings to put together a bigger deposit.

You will need a minimum of £1,600 to get the government bonus, which would pay you £400. 

There are other factors to consider when looking at this product, some providers will let you hold one of its own cash Isas at the same time. 

Others will only let you have a Help to Buy Isa, which means you lose the rest of your Isa allowance each tax year.

There are also differences in how you open the accounts, with some providers only letting you open them in branches or over the phone rather than online.

What are providers offering?

The top rate:  Halifax, 4 per cent variable 

Time taken to earn maximum Govt top-up of £3,000: 50 months 

This is currently the best Help to Buy Isa rate but you have to hold this product as a sole cash Isa, meaning you cannot open another until you have finished saving for your deposit.

You can open your account online, in-branch or on the phone. 

If the rate remains unchanged over the next few years, as the table below shows, by paying in the maximum contributions, you would have totted up £11,599.76 by the end of year four – not bad seeing as you would only have contributed £10,600 yourself. 

And you would only need two more months of contributions plus interest to hit the £12,000 target to receive the maximum government bonus.

This is based on depositing £1,000 when opening the account and paying the full £200 each month, plus the 4 per cent interest received each year.

HOW LONG WILL IT TAKE TO GET TO £12,000 WITH A HALIFAX HISA?
Year Amount saved After 4% interest annually
1 £3,400 £3,498.38
2 £5,800 £6,088.35
3 £8,200 £8,789.04
4 £10,600 £11,599.76
5 £13,000 £14,524.39

Virgin Money– 3 per cent variable

Time taken to earn the maximum Govt top-up of £3,000: 51 months 

Virgin Money has a variable rate of 3 per cent. Accounts can only be opened online and it has to be your sole cash Isa.

The bank has also launched a Saving to Buy account alongside the Help to Buy Isa that can be opened with £1 and hold a maximum of £30,000. It pays a rate of 1.3 per cent.

If the rate stays the same and you make the maximum contributions, you would have saved £11,466 with interest by the end of year four.

That means you need to save for three more months to reach the £12,000 and be eligible for the full £3,000 government bonus.  

HOW LONG WILL IT TAKE TO GET TO £12,000 WITH A VIRGIN MONEY HISA?
Year Amount saved After 3% interest
1 £3,400 £3,502
2 £5,902 £6,079
3 £8,479 £8,733
4 £11,133 £11,466
5 £13,866 £14,281

Barclays, 2.27 per cent variable 

Time taken to earn max Govt top-up: 52 months

Barclays has a variable rate of 2.27 per cent annually. However, interest is paid monthly at 2.25 per cent if you close the account before the end of the anniversary of the account opening., you could end up with less if you close the account before the end of the anniversary of the account opening.

Accounts have to be opened in branch or on the phone but won’t be available until December 17. It will be available online from next year.

If the annual 2.27 per cent rate stays the same and you make the maximum contributions, you would have saved £11,276 by the end of year four. So you would need another four months of contributions, before interest, to reach the £12,000 target and get the full £3,000 government bonus.

HOW LONG WILL IT TAKE TO GET TO £12,000 WITH A BARCLAYS HISA?
Year Amount saved After 2.27% interest annually
1 £3,400 £3,477
2 £5,877 £6,035
3 £8,435 £8,626
4 £11,026 £11,276
5 £13,676 £13,986

Aldermore, 2 per cent variable

Time taken to earn max Govt top-up: 52 months

Aldermore offers savers a variable 2 per cent rate that can be opened online, on the phone or by post.

It will also let you hold another Aldermore cash Isa at the same time as its systems allow a number of tax-free products to be held under one Isa wrapper. 

This means you could split your £15,240 allowance between a Help to Buy Isa and cash Isa but only as long as you keep your cash Isa and Help to Buy Isa with the same provider. 

The highest rate Aldermore offers on a cash Isa is 1.85 per cent for a three-year fixed rate, but you need £1,000 to open it.

Nationwide, 2 per cent variable

Time taken to earn max Govt top-up: 52 months 

Nationwide is offering a variable rate of 2 per cent as well as up to £1,750 cashback for anyone who goes on to use its Save to Buy Mortgage range of products. 

This is made up of £1,000 cashback on savings of £5,000, £500 cashback on mortgages and £250 if you open a Flexclusive current account.

Including to the maximum £3,000 Government bonus on the Help to Buy Isa, you could get a £4,750 windfall to add to your £12,000 of savings, giving you £16,750 for a deposit.

You can also hold a Nationwide cash Isa at the same time. 

Any savings in a Nationwide cash Isa could also be added to this.

Savers can open an account online, in-branch or over the phone. 

NatWest – 2 per cent variable rate 

Time taken to earn max Govt top-up: 52 months 

NatWest offers savers a 2 per cent variable rate and will let you hold one of its own cash Isas as well. 

You can open accounts online and in-branch. 

Lloyds Bank – 2 per cent variable rate

Time taken to earn max Govt top-up: 52 months  

Savers can open a Help to Buy Isa with Lloyds for a variable rate of 2 per cent.

This has to be your sole Isa account and it can be opened in-branch, online or by post. 

HSBC– 2 per cent variable rate

Time taken to earn max Govt top-up: 52 months  

You can get a 2 per cent variable rate from HSBC. This has to be your sole cash Isa and can only be opened in-branch or over the phone.

If you were to make the maximum £200 contributions each month and a 2 per cent variable rate Help to Buy Isa stayed the same, you would build up £11,172 by the end of year four (before the government contribution that is only made at the time of purchase and paid by voucher to the solicitors), as the table below shows.

So you would need to make four more months of £200 contributions to hit the £12,000 that qualifies for the 25 per cent government bonus. 

So you would need to make four more months of £200 contributions to hit the £12,000 that qualifies for the 25 per cent government bonus. 

If you close the account at this point then you would have £15,000 after the government top up.  

HOW LONG WOULD IT TAKE TO SAVE £12,000 ON A 2% VARIABLE RATE? 
Year Amount saved After 2% interest annually
1 £3,400 £3,468
2 £5,868 £5,985
3 £8,385 £8,553
4 £10,953 £11,172
5 £13,572 £13,843

Santander – 2 per cent  and 1.5 per cent variable

Time taken to earn max Govt top-up: 52 or 53 months

If you hold a Santander 123 current account or credit card you could get a rate of 2 per cent.

You can also get the 2 per cent rate if you are a Santander Select customer, but this requires you to have a £5,000 monthly income or £75,000 of savings, which may be a lot to expect from first-time buyers. 

Accounts can be opened over the phone or in-branch. 

If you don’t hold any other Santander products then you will only be offered 1.5 per cent. This is the lowest Help to Buy Isa rate on the market.  

Newcastle Building Society – 0.5 per cent and 1.5 per cent variable

Time taken to earn max Govt top-up: 53 or 55 months

Newcastle Building Society offers a Help to Buy Isa rate of 1.5 per cent to savers making regular monthly contributions, or 0.5 per cent for any month that you don’t make contributions or take money out.

You can also open its Big Home Saver Isa to sit alongside the product. This pays a tax-free variable rate of 1.15 per cent as long as you make at least one deposit and make no withdrawals in each calendar month. Otherwise it drops to 0.75 per cent for any month you don’t make contributions or withdraw funds.. 

The Big Home Saver Isa also offers up to £1,000 cashback if you take out a Newcastle Building Society mortgage. 

It would take until the end of year four years to get to just over £11,000 on a 1.5 per cent variable rate, based on making the maximum available contributions. You would then need to save for five more months to hit £12,000 before interest is applied. 

HOW LONG WOULD IT TAKE TO SAVE £12,000 ON A 1.5% VARIABLE RATE? 
Year Amount saved After 1.5% interest annually
1 £3,400 £3,451
2 £5,851 £5,938
3 £8,338 £8,463
4 £10,863 £11,025
5 £13,425 £13,626

Clydesdale and Yorkshire – 0.7% variable

Time taken to earn max Govt top-up: 55 months 

Savers can get a Help to Buy Isa with a variable rate of 0.75 per cent from either Clydesdale or Yorkshire Bank.

The 0.7 per cent rate is paid on savings up to £14,999. Above that you will get 0.9 per cent and you will get 1 per cent for savings of £30,000 or more.

You will only get the government bonus on £12,000 of savings so you have to question if it is worth saving more for relatively low rates.

If the 0.7% rate stays the same and you make the maximum contributions, you would earn £10,720 by the end of year four. You then need to save for seven more months to hit the £12,000 mark and get the full government bonus.

HOW LONG WOULD IT TAKE TO SAVE £12,000 ON A 0.7% VARIABLE RATE? 
Year Amount saved After 0.7% interest
1 £3,400 £3,423
2 £5,823 £5,863
3 £8,263 £8,320
4 £10,720 £10,795
5 £13,195 £13,287

 

 

THE HISA: HOW THE HELP TO BUY ISA COULD HELP WITH YOUR DEPOSIT

How long can I have a Help to Buy Isa for?

You can keep your Help to Buy Isa open and contribute for as long as you like from December 1 2015. But the scheme will be closed to new savers on November 30 2019.

You can take your money out at any time, but you only get the bonus when you are putting a deposit down for a house. 

What happens when I am ready to use my deposit?

You will only get the government contribution once you close your account.

Once you have saved up the amount required for your deposit you would need to close you Help to Buy Isa account.

Your solicitor or conveyancer will then apply for the government to pay the bonus amount.

They can only charge a maximum of £50 plus VAT to process your bonus payment.

You will need a minimum of £1,600 to get the government bonus, which would pay you £400.

The government bonus will be calculated based on the amount of money you have in your account when you close it. This includes both the money you have saved, and any interest you have earned on that money. You will not receive a government bonus of more than £3,000.

The money raised can only be used for a first-time buyer residential property worth up to £450,000 in London or up to £250,000 elsewhere. 

 

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