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NatWest unveils the first Help to Buy Isa, offering a 2% variable rate to boost your mortgage deposit

Updated: 02:42 EST, 27 November 2015

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NatWest has become the first bank or building society to release the rate it will offer first-time buyers looking to save up a mortgage deposit with a Help to Buy Isa at 2 per cent.

The tax-free accounts were announced during Chancellor George Osborne’s March Budget as a helping hand for first-time buyers by topping up the amount they put away with a contribution from the government.

First-time buyers can save £200 each month and the government provides a 25 per cent bonus on the interest and contributions once a home purchase is made.

The Hisa: First-time buyers can save £200 each month and the government provides a 25 per cent bonus on the interest and contributions once the product is closed

However, the bonus is set at a maximum of £3,000 so the upper limit that can be saved to benefit from the bonus is £12,000.

The NatWest account can be opened with an initial deposit of £1,000 on top of the £200 contribution in the first month.

If you were to make the maximum £200 contributions each month and the 2 per cent variable rate stayed the same, you would build up £11,172 by the end of year four (before the government contribution that is only made at the time of purchase and paid by voucher to the solicitors), as the table below shows.

So you would need to make four more months of £200 contributions to hit the £12,000 that qualifies for the 25 per cent government bonus. If you close the account at this point then you would have £15,000 after the government top up.

HOW LONG WOULD IT TAKE TO GET TO £12,000 WITH A NATWEST HISA?
Year	Amount saved	After 2% interest
1	£3,400	£3,468
2	£5,868	£5,985
3	£8,385	£8,553
4	£10,953	£11,172
5	£13,572	£13,843

The rate is higher than what you would get on most easy-access cash Isas, although it is variable so there is always the risk of it falling.

Nationwide has a variable rate cash Isa at 1.6 per cent that you can open with a minimum of £1.

Virgin Money offers a five-year fixed rate cash Isa at 2.5 per cent for a minimum £100 deposit.

But you are more limited with a Help to Buy Isa as you can only contribute £200 a month and you only get the bonus on £12,000 of savings.

Savers can put money in on top of the £12,000, but the maximum bonus is £3,000.

There are other rules to bear in mind. The Treasury has said you can only hold one cash Isa so that means only having the Help to Buy Isa while saving for your mortgage deposit. You can still have a stocks and shares Isa at the same time.

You could also consider savings account as an alternative, especially as from next April as savers will be entitled to £1,000 interest tax-free.

Secure Trust offers a fixed rate savings account at 3.05 per cent for a minimum £1,000 deposit.

This could be of benefit particularly if your Help to Buy Isa provider is unable to let you hold an active cash Isa at the same time.

Some lenders get round the restriction by offering an Isa wrapper with different products such as a cash and Help to Buy product sitting under it. NatWest will let you hold a separate cash Isa but only from its own product range.

The launch comes after the Chancellor George Osborne unveiled further extensions to the Help to Buy scheme such as London focused and shared ownership loans.

THE HISA: HOW THE HELP TO BUY ISA COULD HELP WITH YOUR DEPOSIT

How will the Help to Buy Isa work?

A Help to Buy Isa is a tax-free savings account that can be used by first-time buyers to fund a deposit on a property.

You can save up to £200 each month and the government will provide a 25 per cent bonus on each amount saved and the interest earned.

So for every £200 you contributed, you can get £50 from the government. You will also be able to set up the account with a £1,000 deposit on top of the £200 contribution, meaning you could start off with £1,250 when you include the government money.

This isn’t an endless pot though and the maximum government contribution you can get is £3,000. This means you will only get the government bonus on up to £12,000 worth of Help to Buy Isa savings. That will give you £15,000 towards a deposit.

Saving £200 each month to get £12,000 would take five years.

If you put the initial £1,000 deposit that is allowed in, it would take 55 months to save the remainder to get to the £12,000 maximum - four years and seven months.

So far it is unclear whether providers will let you save more on top of the £12,000.

Can I have a Help to Buy Isa alongside my Cash Isa?

You can’t save into a cash Isa and a Help to Buy Isa in the same tax year.

If you have already opened a cash Isa since April 2015 you will need to close this and transfer the balance, if allowed by the provider.

You can open a new cash Isa every year, but with the Help to Buy Isa you are only allowed to open one Help to Buy Isa that you then hold onto and contribute to each tax year.

Help to Buy Isas are available to individuals, rather than households, so if you are buying with another first-time buyer you could combine your savings. This means a couple could save up to £30,000 with the government bonus.

You can still put money into a stocks and shares Isa. So if you put in £2,400 a year of your Isa allowance into the Help to Buy product, you still have £12,840 you could invest, based on the current allowance.

How long can I have a Help to Buy Isa for?

You can keep your Help to Buy Isa open and contribute for as long as you like from December 1 2015. But the scheme will be closed to new savers on November 30 2019.

You can take your money out at any time, but you only get the bonus when you are putting a deposit down for a house.

What happens when I am ready to use my deposit?

You will only get the government contribution once you close your account.

Once you have saved up the amount required for your deposit you would need to close you Help to Buy Isa account.

Your solicitor or conveyancer will then apply for the government to pay the bonus amount.

They can only charge a maximum of £50 plus VAT to process your bonus payment.

You will need a minimum of £1,600 to get the government bonus, which would pay you £400.

The government bonus will be calculated based on the amount of money you have in your account when you close it. This includes both the money you have saved, and any interest you have earned on that money. You will not receive a government bonus of more than £3,000.

The money raised can only be used for a first-time buyer residential property worth up to £450,000 in London or up to £250,000 elsewhere.

Who offers Help to Buy Isas?

Barclays, Lloyds Banking Group, Nationwide, Santander, and Virgin Money have all signed up offer Help to Buy Isas.

There is no requirement to take out a mortgage with the lender who provides your Help to Buy Isa, so it is worth shopping around for both the best Help to Buy Isa rate and mortgage deal.

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