While you’re renting your property, there are ways that you can save money at the same time. If you want to be a homeowner in the future have a look at the Help to Buy ISA.
The Help to Buy ISA
If you’re going to be a first-time buyer, then a Help to Buy Isa is a good way of saving up for a deposit on a mortgage. In your first month you can pay in up to £1,200 and from then on, a maximum of £200 a month. A benefit of this scheme is that you aren’t obliged to put in money each month. If something comes up and you can’t make the payment it doesn’t matter.
You can make it up the next month if your payments are up to £100, but you can’t if your payments are over that amount because the maximum monthly payment is only £200. This is what you need to remember if you are thinking of skipping payments.
Once you have saved up at least £1600 you will be eligible for the government bonus of 25% of your savings up to a limit of £12,000. You can save more than this amount, but you’ll only get a bonus on a maximum of £12,000.
Buying your Home
When you are ready to buy your first home, you close your Help to Buy Isa and your solicitor will apply for your bonus. If you have saved up to the £12,000 limit, you’ll be entitled to a bonus of £3,000 which will boost your savings to £15,000. If you have only saved £6,000 then you’ll get a further £1,500. The minimum you can save is £1600 which will give you a bonus of £400.
When to Buy
You can open a Right to Buy Isa from the age of 16 up to any age as long as you are a first-time buyer. You can save until December 2029 and if you are going to use your savings for a deposit you must do so by December 2030.
If you are a couple and you are both first-time buyers, you can each open a Help to Buy Isa which means you are doubling your savings and your bonus. You can’t open two Isa’s if one partner has already bought a home.
There are limits to the cost of your first home. You can only use the Right to Buy Isa scheme to purchase a property less than £250,000 or £450,000 if you are buying in London. Have a look at this map to see which London boroughs are included. Unlike the governments Equity Loan scheme, you don’t have to buy a new build. You can buy any type of home, apart from buy to let.
Although you may be able to rent out your home in some circumstances. If, for instance you were relocated to another district or a foreign country for a certain amount of time and you didn’t want to sell your home. You won’t be able to use the Isa to start up a Buy to Let portfolio. If you do and you get caught the government will sue you for the amount of the bonus.
Help to Buy Providers
You only buy one Help to Buy Isa and this lasts until you decide to close it. You can transfer it though between providers if you find a better interest rate with another provider.
If you decide in the future not to buy a property you’ll still get the benefit of tax-free savings and interest, you just won’t get the 25% government bonus.