29th January 2025
Our guide to Help to Buy ISAs, covering their purpose, features, drawbacks, and how they can help first-time buyers save for their first home.
The UK government introduced the Help to Buy ISA in December 2015 as part of a broader effort to support first-time buyers in overcoming the financial barriers to homeownership. Designed specifically to help savers build a deposit for their first home, the scheme offered a unique incentive: for every £200 saved, the government would contribute a 25% bonus, up to a maximum of £3,000.
Although the scheme officially closed to new applicants on November 30, 2019, existing account holders can continue saving until November 2029. The government bonus can still be claimed until November 2030, provided the funds are used towards the purchase of an eligible property.
Savings Limitations: Savers can make an initial deposit of up to £1,200 and monthly deposits of up to £200.
Government Bonus: 25% bonus on savings, with a maximum of £3,000. Minimum savings required for a bonus: £1,600 (yielding a £400 bonus).
Property Price Cap: Outside London: properties up to £250,000. Within London: properties up to £450,000.
Tax-Free Interest: Like other ISAs, the interest earned is tax-free.
The Lifetime ISA (LISA) is another government-backed savings product designed to help individuals save for their first home or retirement. Launched in April 2017, the LISA shares similarities with the Help to Buy ISA, such as offering a 25% government bonus, but it also has key differences that may make it a more appealing option for certain savers.
Eligibility: Open to individuals aged 18 to 39, the LISA allows contributions and government bonuses until age 50.
Contribution Limits: Savers can deposit up to £4,000 per tax year, with the 25% government bonus added to the savings - up to £1,000 annually.
Flexible Use: Funds can be used for purchasing a first home (up to £450,000) or kept for retirement savings, accessible penalty-free after age 60.
Property Price Cap: Unlike the Help to Buy ISA, which has a property price cap of £250,000 outside London, the LISA’s £450,000 cap applies nationwide.
Withdrawal Penalty: Withdrawals for purposes other than buying a first home or retirement incur a 25% penalty on the amount withdrawn, which can result in losing some of your own savings as well as the bonus.
If you plan to purchase a property within the next 12 months, a LISA might not be the right choice. This is because funds from a LISA must be held for at least 12 months before they can be used for a home purchase. If you withdraw the money earlier, you'll face the 25% penalty, which could leave you with less than you saved.
Whilst you can hold both a Help to Buy ISA and Lifetime ISA at the same time, and you can pay into both types of account within the same tax year, you can only get the government bonus on one of them when you buy your first home. However, you could use the bonus from your Help to Buy ISA when you buy your first home, and your Lifetime ISA (and its bonuses) when you turn 60 for retirement.
Keep in mind that you can no longer open new Help to Buy ISAs, so this question only applies to you if you've already opened one.
Choosing whether to transfer money from a Help to Buy ISA to a Lifetime ISA depends on your property goals, timeline, and the cost of the house you plan to buy.
Help to Buy ISA: This option is still useful for those who want to buy a home within the next 12 months or prefer smaller, regular contributions. However, the property price cap of £250,000 (or £450,000 in London) may no longer be sufficient for some markets, especially in areas where house prices have risen significantly. If you’re purchasing in regions with higher property values, the Help to Buy ISA could limit your options.
Lifetime ISA: For buyers saving for higher-value properties or those planning to buy a home in the longer term, the Lifetime ISA offers a more suitable solution. Its £450,000 property cap applies nationwide, making it better suited to areas where property prices often exceed £250,000. Additionally, its higher annual contribution limit and dual-purpose flexibility (home purchase or retirement) make it an attractive option for savers with more time to plan. If you think you might need the money for something other than house purchase or retirement, you should bear in mind the 25% charge taken by the government for withdrawals.
Ultimately, if you’re targeting a property above £250,000 outside of London or need more than a year to save, the Lifetime ISA may provide the flexibility and bonus potential you need. However, for shorter timelines or smaller savings needs, the Help to Buy ISA could still be a practical choice.
In January 2025 the Government announced that it was launching a review on the Lifetime ISA, asking whether it is still fit for purpose.
They are asking 10 questions as part of the review which can be found here: Is the Lifetime ISA fit for purpose in 2025? Committee calls for evidence - Committees - UK Parliament
This review did not mention anything about the Help to Buy ISA property price cap, however we do know that the Building Societies Association will be including the low house price cap on Help to Buy as part of its response to the Government committee.