Another option for first-time buyers saving for a mortgage deposit is a help to buy ISA. With a help to buy ISA you can earn up to 2.27%interest tax free, and the government will add 25% tax free to whatever is in your ISA when you use it to buy a home. However, the bonus will only be available on homes costing under £250,000 (£450,000 in London). In addition, although you can use the help to buy ISA with any type of mortgage (not just a help to buy mortgage), it must be a residential mortgage and not buy-to-let.
Before considering putting money into a help to buy ISA, you should be aware that a flaw in the scheme means that the 25% government “bonus” will not be paid out until the sale of the property has been completed. Many experts believe this renders help to buy ISAs useless as they’re designed to help first time buyers who are struggling to find the huge initial outlay to buy a home. The scheme has attracted a lot of criticism over the fact the bonus can’t be used to help pay for the deposit, and this loophole is likely to mean that many buyers will still need assistance from their parents in order to pay the deposit.