Help to Buy and Innovative Finance ISAs – the perfect match?

By Scott Murphy

As the new Help to Buy ISA is launched we look at how investing with peer-to-peer platforms can also help you save for your first home.

The new “Help to Buy ISA” (HTB ISA) is now available to all first time buyers. For every £200 saved (the maximum monthly amount), the Government will boost the value by £50 up to a total bonus of £3,000. The bonus is paid only when the person saving actually buys their first property and is available on purchases up to a value of £450,000 in London and £250,000 outside London. You can read more about the Help to Buy ISA in this factsheet produced by HM Treasury.

With the average house price in the UK standing at £186,350 (£503,431 in London) according to Government data, the scheme is a welcome help to struggling first time buyers. However, according to the rules, savers cannot open both a Help to Buy ISA and a cash ISA in the same tax year. A small number of banks and building societies offer a “portfolio ISA” allowing savers to hold both ISAs however they need to be with the same provider. With Cash ISAs offering historically low rates what other investment options are available if you want to supplement a Help to Buy ISA with alternative investments?

Provider

HTB ISA Rate

Best Cash ISA Rate

Halifax

4% AER Variable

Not applicable**

Virgin Money

3% AER Variable

Not applicable**

Barclays

2.27% AER Variable

Not applicable**

Nationwide*

2% AER Variable

1.4%/1.6%/1.65%*

NatWest*

2% AER Variable

0.25%*

Lloyds Bank

2% AER Variable

Not applicable**

HSBC

2% AER Variable

Not applicable**

Bank of Scotland

2% AER Variable

Not applicable**

Santander

2%/1.5% AER Variable

Not applicable**

Aldermore*

2% AER Variable

1.3%*

Ulster Bank*

2% AER Variable

0.5%*

Newcastle Building Society*

1.51% AER Variable

0.5%*

 

*These providers offer a portfolio ISA allowing savers to hold both a Cash ISA and HTB ISA with the same provider.

 

** You cannot subscribe to a Cash ISA if you hold a HTB ISA with this provider

 

Rates depend on the term of the investment. Correct as of 1 December 2015.

 

If you still want to use the rest of your ISA allowance and aren’t keen on a stocks and shares ISA, one option is peer-to-peer lending. We know that a small but growing number of our investors (around 5%) are using RateSetter to save for a deposit for their house. Peer-to-peer lenders are not yet able to offer a HTB ISA, however peer-to-peer lending will be eligible for the new Innovative Finance ISA (IFISA) from 6 April 2016, allowing tax-free investments of up to £15,240. You can read more about the new ISA on our IFISA blog.

 

Crucially it is possible to hold both a HTB ISA and an IFISA in the same tax year. By combining the Help to Buy ISA with the new IFISA first time buyers will be able to achieve their goal of home ownership in a shorter period of time.

 

Are you planning to open a Help to Buy ISA? Will you combine it with investment in peer-to-peer lending or, from April, an Innovative Finance ISA? Let us know in the comments section below.