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Last-minute surge in help-to-buy Isa applications reported by banks

Rupert Jones
<span>Photograph: Yui Mok/PA</span>
Photograph: Yui Mok/PA

Banks and building societies are reporting a last-minute surge in applications for a government savings scheme offering people up to £3,000 of “free” money.

The help-to-buy Isa, which helps people save towards a deposit on their first home, closes to new savers at midnight on Saturday 30 November.

The account was launched at the end of 2015 and is judged by many commentators to have been a success: the latest Treasury data shows that more than 256,000 homes worth a total of £44bn have so far been bought using the Isa.

The accounts are available from banks and building societies, many of which have reported an 11th hour surge in interest.

Each tax year you get an Isa allowance of £20,000, with the basic choice of putting the money into a bank or building society deposit account or taking more risk and investing it in stocks and shares. You can mix and match as you like, for example putting £15,000 on deposit and £5,000 in shares. And you don’t have to put in £20,000 – you can open an account with just a few pounds. 

The main benefit is that the interest on the deposit account, or the dividends from the shares, is tax free. They are also free from capital gains tax. 

But note if you are only investing small sums, then the Isa "wrapper" offers few real benefits. You automatically have a personal savings allowance, which means you can receive up to £1,000 in interest (£500 if you’re a higher rate taxpayer) without having to pay any tax.

Investors are also allowed to pick up £2,000 a year in dividends without paying tax. 

The big attraction of Isas is if you are able to use the full £20,000 allowance (one for you and your partner) and stay invested for many years, then draw down the income in retirement, tax free. 

Separate rules apply for innovative finance Isas, help-to-buy Isas and the lifetime Isa.

Nationwide said it had seen “a sharp uplift in applications” in recent weeks, adding: “With each day we get closer to the deadline, volumes increase even further.”

Santander said it had seen a “significant increase” in applications.

If someone saving up to buy their first home puts money into the Isa, the government will boost their savings by 25%. So for every £200 saved, first-time buyers can receive a bonus of £50. The maximum government bonus is £3,000, although to receive that an account-holdermust have saved £12,000. When both members of a couple sign up, the maximum total bonus is £6,000.

Those who sign up before the deadline can continue paying into their account for another 10 years, prompting some experts to say that this scheme is not just for those already planning to buy a property – it could also benefit many people in their mid to late teens who may want to buy at some point in the future.

Individuals can open an account with as little as £1, and while they can save up to £200 a month, there is no requirement to pay money in every month.

The Isa cash has to be used to buy a home up to the value of £250,000 outside London, or up to £450,000 in the capital.

To qualify, an individual must be 16 or over and be a first-time buyer – defined as someone who doesn’t own, and has never owned, a home anywhere in the UK or the world.

Martin Lewis at the website said all 16-year-olds who dreamed of owning a home should “open one now, even with £1, or you could be throwing £1,000s away”.

Private Finance, a mortgage broking firm, said: “With up to £3,000 of essentially free money up for grabs, would-be buyers should act quickly to secure their chance of receiving this bonus.”

After 30 November, the accounts will not be available to new savers – but those who opened one before then can keep saving into it until November 2029, when accounts will close to additional contributions. The government bonus cash must be claimed by December 2030.

To date, the government has paid out £320m in bonuses, with the average amount handed out put at £943, according to new Treasury data covering the period from the Isa’s December 2015 launch to 30 June 2019.

The median age of a first-time buyer who used the scheme was 28, though 40 people aged 65-plus have received bonuses, as did eight homebuyers aged under 18.

The government bonus contributes towards someone’s overall deposit – sometimes referred to as the mortgage deposit. But they do not get the bonus money at the exchange stage – they only get it on completion.

While the official deadline is midnight on 30 November, some providers are pulling down the shutters earlier than that: for example, Santander’s online deadline is 11.59pm on Thursday 28 November.