Help to Buy ISA deals unveiled
Banks and building societies are offering returns ranging from 0.7% up to 4% on savings in the Help to Buy ISA.
First-time buyers saving for a deposit can earn tax-free interest of up to 4% following the launch today of the Help to Buy ISA.
Banks and building societies are still unveiling their rates for the product. But those who have already published them are offering returns ranging from 0.7% to 4%, while the Government will also add a bonus of up to £3,000.
The leading rate for the product will enable people saving to get onto the property ladder to accumulate a £17,500 deposit over five years by setting aside just £200 a month.
Why is this happening?
The scheme is the Government’s flagship initiative to help people who are struggling to get onto the property ladder save money for a deposit.
With the average home now costing more than £186,000, and mortgage lenders still demanding significant deposits, many potential buyers face an uphill struggle to set aside the money required to purchase a property.
The Help to Buy ISA aims to make it easier for people to save the deposit they need.
Who does it affect?
Help to Buy ISAs are obviously good news for first-time buyers. Like conventional ISAs, any interest earned on the money is tax-free.
Potential buyers can save up to £12,000 through the Help to Buy ISA, and the Government will top this up with £50 for every £200 they have saved – the equivalent of a £3,000 bonus.
As a result, people saving as a couple will be able to set aside £24,000 and receive a further £6,000 from the Government, giving them a total deposit of £30,000.
The accounts can be opened by anyone over 16, as long as they have not previously owned a property.
Prime Minister David Cameron said: "My message is clear – if you’re working hard and saving for the future, I don’t just want you to have a roof over your head – I want you to have a roof of your own.
"Thanks to our strong economy and steps this government has already taken, over 230,000 more people have become homeowners since 2010. I want to go further and turn generation rent into generation buy – and today’s announcement is another clear step in us delivering on that commitment."
Sounds interesting. What’s the background?
It is early days for the Help to Buy ISA. Up to 14 banks and building societies will offer the product, but they are still announcing their rates.
Halifax currently leads the field, offering a variable interest rate of 4% on the product. The group claims this return, combined with the Government bonus, will give savers who set aside the maximum £1,200 in the first month and £200 a month thereafter a total of £17,500 after five years.
And at the other end of the spectrum, Clydesdale Bank and Yorkshire Bank are each offering a rate of 0.7%.
Here are banks and building societies' variable rates on Help to Buy ISA so far:
Virgin Money: 3%
Barclays: 2.27% (available from December 17, 2015)
Bank of Scotland: 2%
Lloyds Bank: 2%
Nationwide Building Society: 2% (it offers up to £1,750 cashback for first-time buyers accessing its Save to Buy mortgage range)
Newcastle Building Society: 1.51% (rate includes a 1% bonus on the condition that you make a deposit each and every month)
Santander: 1.5% (and 2% for 123 World and Select customers)
Clydesdale Bank: 0.7%
Yorkshire Bank: 0.7%
"Given that the accounts are more akin to regular savings accounts, we had hoped for rates closer to some of the very high rates currently available on standard regular saving accounts, to reflect the small amounts being saved. So early indications have left us underwhelmed. Halifax could well clean up with its market leading 4% rate – double what the majority are currently offering," Anna Bowes, director at Savingschampion.co.uk, said.
"Having said this, the interest rate is really the icing on the cake. A generous 25% bonus is a great incentive for those who are struggling to find the money to save for a deposit."
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