Will the Help to Buy ISA get you on the property ladder?
As house prices continue to spiral young buyers need all the help they can to climb onto the property ladder. Now the Government is rushing to their support with the new Help to Buy ISA, which launched in December.
Free cash from the Government, what's not to like?
Under the scheme, first-time buyers who save regular amounts in a tax-free savings account can claim a Government-funded bonus, worth up to £3,000 per saver, to put towards a deposit.
This is free cash from the government, and you or a family member should seize the chance if eligible.
Be warned, the scheme's rules are complex.
How it works
First-time buyers, classed as those who have never owned a property before, are eligible for the new Help to Buy cash ISA.
They can pay in up to £1,000 when they set up their tax-free account, plus a regular £200 a month. The Government will add 25% to the closing balance, which can only go towards buying a property.
Savers can access their money and claim their bonus once they have paid in £1,600, giving them the minimum top-up of £400.
The maximum you can save in the account is £12,000, which would give you a £3,000 bonus. That will take your total pot to £15,000, plus savings interest.
That won't go far in today's property market but every little helps. Especially since couples can pool their tax-free Help to Buy Isa savings to give them a maximum £30,000.
Save early, save often
The Help to Buy ISA won't be of much help for people looking to buy today, as it will take four years and seven months to secure the maximum bonus.
The average first-time buyer property already costs £215,000, according to the Office for National Statistics, and if prices continue to rise at their current pace, it could be a lot higher in five years.
Savers need to be 16 to open an account and far-sighted parents may want to start as early as they can.
How the accounts rate
Banks and building societies have started launching their Help to Buy ISA accounts but initial rates were disappointing.
At time of writing, the best buy account was paying 4%. A first-time buyer who saved the maximum could have a total of £17,525 after five years, including bonus and interest.
Other rates are less impressive, with some as low as 0.50%.
Don't just go to your own bank or building society but shop around for the best rates online, for example using a comparison site.
Some may put off by strict rules that state the money can only used to buy homes costing £250,000 or less, or up to £450,000 in London.
You can take your money out if you decide not to buy but will forfeit the bonus.
Savers are free to choose a mortgage from any lender and can transfer cash in the Help to Buy ISA to more competitive deals with other providers.
The scheme is far from perfect, but some help for today's struggling youngsters is better than none.