What sort of ISA is best for first-time buyers?

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Becoming a home-owner for the first time can be a struggle now that the 100% mortgage is a distant memory. Even with the government’s help-to-buy schemes, you’ll have to raise 5% of the purchase price as a deposit – and on a £200,000 house that’s £10,000.

Putting cash aside for a deposit is high on aspiring home-buyers’ agendas, so it’s just as well that there are so many tax-free ISAs available from building societies and high street banks to make the most of every pound of savings.

There’s been a lot in the news lately about the latest government boost for first-time buyers, the help-to-buy ISA. This offers a healthy £50 top-up from the government on every £200 a month saved, up to a maximum of £12,000.

The help-to-buy ISA will be available to savers until 2019. You can save, at your own speed, up to a maximum of £200 a month. You can draw down the government bonus whenever you’re ready to put a deposit on a home – with no time-limit.

However, the help-to-buy ISA doesn’t open until the autumn of 2015 and you can’t get one if you already have an ISA this tax year. It’s also only available if you use it to buy a home worth under £250,000 (£450,000 in the booming London property market).

Unless you’re a couple who are both first-time buyers (when you can take out a help-to-buy ISA each), the £200-a-month ceiling on saving means that it will take 55 months to get the maximum government bonus. With all those ISAs maturing at once in 2019, some property experts are predicting a price surge, which won’t help those struggling to get onto the bottom rung of the ladder.

Before putting all your eggs in the help-to-buy basket, it’s wise to look at all the products available. If you’ve got a big lump sum already, you might be casting an eye on the rising house-market and decide to take a faster route to that deposit, such as a traditional ISA with its £15,240 a year tax-free savings limit.

However, as The Telegraph points out, only the riskier stocks and share ISA can offer the same level of return on your savings (4.5% or more) as the help-to-buy ISA with the full government bonus.

The traditional cash ISA comes in fixed-rate and easy access versions, and both still make great options for general savers. If you’re a first-time homebuyer, however, holding on to your savings and making that £1,000 initial deposit into a help-to-buy ISA in the autumn looks like a wise choice.

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