Move fast for a Help To Buy Isa with only six months remaining

Help To Buy Isa, which pays average bonus of £899, to be withdrawn from sale on November 30

Homebuyers have just six months left to sign up to a savings plan that comes with a 25 per cent Government bonus when they buy their first property.

The Help To Buy Isa, which has paid an average bonus of £899 since its 2015 launch, will be withdrawn from sale on November 30.

Uptake of this scheme has been less than expected. The Office for Budget Responsibility dramatically cut its forecasts as to how much it will cost the Government in bonuses. At launch, it expected to pay out £823 million in 2019/2020. Now it forecasts just £150 million.

Getting on the property ladder: With a Help To Buy Isa, anyone over 16 can save up to £200 a month and benefit from the government bonus to buy a home

Those looking to get on the property ladder are confused as to how it works, research from Aldermore Bank shows. They should also grapple with the workings of the Lifetime Isa, which could give a better return.

The latter, launched in April 2017, just 16 months after the Help To Buy Isa, also pays out a 25 per cent government bonus to those purchasing their first home. But you can only get the government bonus on one of them when buying your first home. Which is better depends on how much you can afford to save and when you plan to buy.

With a Help To Buy Isa, anyone over 16 can save up to £200 a month (£1,200 in the first month) and benefit from the government bonus to buy a home up to £450,000 in London or £250,000 elsewhere. The maximum bonus over its life is £3,000.

On the full £200 a month (£2,400 a year), you qualify for a bonus of £600 each year, which is paid when you cash in your plan. You can boost this to £850 in the first year, as you can start by paying in a lump sum of £1,000.

Once you have opened a Help To Buy Isa, you can keep saving into it until November 30, 2029. You have until December 1, 2030, to claim your bonus.

The Lifetime Isa lets those aged between 18 and 39 save £4,000 each year, so the maximum annual bonus is £1,000. You qualify for the bonus if you use the money as a deposit for a first home worth no more than £450,000, or if you don’t touch it until you reach age 60.

If you use the money for anything else, there is a fierce 25 per cent penalty, which can leave you with less than you put in.

The Lifetime Isa might look better, but you must be sure you don’t want to buy in the next 12 months — the account must run for at least a year before you qualify for any bonus.

You have access to the money when you put down the deposit on your first home with the Lifetime version. A stumbling block with the Help To Buy Isa is that you only get the money when you pay for the house in full, rather than when you put down the deposit.

Both plans suitable for saving your cash deposit are available in the High Street. Only a handful — including Skipton, Newcastle and Nottingham building societies — offer the Lifetime Isa with rates around 1 per cent. Help To Buy Isas are more widely available, with best rates around 2.5 per cent at Newcastle BS, Virgin Money, Nationwide, Barclays and NatWest.