BYM Buying your house with an ISA
Go Back

Everything you need to know about using ISAs to buy your home

Saving up and getting a deposit together is usually the hardest part of buying a home, especially if you don’t know where to start or what help is available.

Whether you’re a first-time buyer or a homeowner moving up the property ladder, there are a few different ways to get the most out of saving your hard-earned income. Here’s everything you need to know about using ISAs to buy your home.

Can my ISA be used to buy a house?

ISA stands for individual savings account, and they allow you to save your money tax-free. As the name suggests, ISAs can only be held in one person’s name.

There are numerous types of ISAs, including:

  • Cash ISAs
  • Lifetime ISAs
  • Stocks and shares ISAs
  • Innovative finance ISAs.

You can place up to £20,000 into your ISAs each tax year.

This allowance can be divided between different types of ISAs, but you will only be able to pay into one of each kind of ISA each year.

Related: Why it’s important to plan your finances before moving

How does the Lifetime ISA work?

The Lifetime ISA is aimed at first-time buyers and people who want to save money to spend in their retirement.

You can save up to £4,000 into a Lifetime ISA each tax year. And the government adds a 25% bonus on whatever you have saved up in this account.

If you do end up saving the full £4,000, you will receive a bonus of £1,000, leaving you with a total of £5,000 in savings each tax year.

You can hold cash or stocks and shares in a Lifetime ISA, or a combination of both.

However, there are rules that you will need to be aware of before using a Lifetime ISA to buy your first home. These include:

  • The property you’re buying should not cost more than £450,000

  • The home must be in the UK

  • The home must be purchased through a mortgage

  • You must live in the UK when you apply for a Lifetime ISA, but it doesn’t matter if you’re a UK citizen or not. (Note: there are a few exceptions to this.)

  • You must plan to live in the property you’re buying

  • You must be a first-time buyer and have never owned a property before, anywhere in the world

  • You must have had a Lifetime ISA open for a year to get the first-time buyer bonus

  • You must be 18 or over but under 40 to open a Lifetime ISA.

Are Help to Buy ISAs still available?

The Help to Buy ISA was introduced in 2015 and allows first-time buyers to pay in up to £200 each month, while the government subsidises savings by 25% (up to a maximum of £3,000).

You will no longer be able to open a Help to Buy ISA, but if you already have one, you can continue saving in it until November 2029 and claim your 25% bonus from the government until November 2030.

Many first-time buyers use their Help to Buy ISAs to pay towards the deposit on their first home. However, it’s important to note that the bonus can only be paid once it is certain that the purchase will go ahead. Therefore, in most cases, you will be able to claim the bonus between exchanging contracts and completing.

Can cash ISAs be used to buy a house?

Cash ISAs are similar to ordinary savings accounts, except you don’t pay tax on interest on cash in an ISA. Because of this, you’re limited in how much you can save in each tax year.

The important thing to consider when choosing to save for your house through a cash ISA is how soon you will need the money. Some ISAs require you to lock up your savings for a fixed period of time, sometimes for several years.

So, while it’s possible to save for your house through a cash ISA, it’s vital to seek professional advice and carefully consider all your options first.

Looking to buy or sell a home? Now could be the best time to make your move. Contact us today.

Other posts you may find useful