Help to Buy Isas revealed in Budget: how do they work?
Osborne says Help to Buy Isas will give first-time buyers a 25% top-up on their savings, but there's a catch
George Osborne has revealed a new Help to Buy Isa, designed to help first-time home buyers save for a deposit.
In his Budget speech, the Chancellor said he wanted to tackle two of the biggest challenges facing first-time buyers: low interest rates for savings and high deposits required by banks for mortgage loans.
To do this, the government has pledged to give buyers a 25 per cent top-up on their savings. "It's as simple as this – we'll work hand in hand to help you buy your first home," he said.
For every £200 an individual saves for their deposit, the government says it will top it up with £50 more.
"A ten per cent deposit on the average first home costs £15,000, so if you put in up to £12,000 – we'll put in up to £3,000 more," said Osborne.
However, there are a few limitations, the most significant of which appears to be a cap on the amount that savers can pay into the account each month.
The maximum initial deposit is £1,000, while the maximum monthly deposit is £200. This means a first-time buyer would have to pay into the Isa for more than four years in order to receive the government's maximum bonus of £3,000. (Click on the image below to expand)
On the plus side, accounts are limited to one per person rather than one per household, so a co-habiting couple saving for a house can receive the bonus twice.
The accounts are only available to individuals who are at least 16 years old and it will only be paid at the point when the person uses their savings to purchase their first home.
"Savers will have access to their own money and will be able to withdraw funds from their account if they need them for another purpose but the bonus will only be made available for home purchase," states the Budget.
The bonus will also only be available on home purchases of up to £450,000 in London and up to £250,000 outside London. According to the Treasury, the accounts will be available through banks and building societies from autumn 2015.