save to buy v help to buy

seanhb

my daughter currently has a NW save to buy account with approx. £12k, that pays 2% and gives access to a 5% mortgage.
however it looks like the Halifax 4% net on a help to buy account gives a better deal when you included the 25% bonus from the Gov.
but that account is a regular saver account so I assume she can transfer the £12k into that?.
It appears her best option would be to freeze the NW account, to keep getting the 2% (on 12k) and low deposit mortgage option. then start a new Halifax HTB account which give better interest and a gov bonus.
as long as she doesn't add to the NW account I assume that doesn't break any ISA tax rules?
ps... she's currently saving £200 pm, and would continue that plus transfer the initial £1k in to get the HTB started.

colsten

She could not transfer more than £1000 initial plus £200 monthly into an HTB ISA.

Nationwide offer a split ISA, which allows her to run an HTB ISA alongside the Save To Buy one. It pays only 2% interest but the really attractive factor in an HTB ISA is the government bonus - so the earlier she starts, the better.

She should be able to move money from her Save To Buy to the Nationwide HTB herself, without haveing to fill in ISA transfer forms.

The Halifax HTB ISA is obviously better interest-wise but she would have to wait until April 6 to start on of these. If she wanted to, she could start the Nationwide HTB ISA now, and have it transferred to Halifax in April. She'd have to stop putting any money into the Nationwide Save To Buy ISA from next year onwards.

She could most likely get a lot better interest than 2% for her £12K in non-ISA accounts. The only reason to keep the ISA(s) at Nationwide is their promise of a good mortgage. Although I am not sure 5% is really a good deal?

bowlhead99

seanhb wrote: »

as long as she doesn't add to the NW account I assume that doesn't break any ISA tax rules?
ps... she's currently saving £200 pm, and would continue that plus transfer the initial £1k in to get the HTB started.

The 'save to buy' account is a Nationwide only product and gets you access to a reasonable interest rate, low loan-to-value mortgage deal, and cashback (depending on the cashback rate communicated to you at the time the account was opened, which has changed over time) if you go ahead with a Nationwide mortgage.

To qualify for the deal at the end, you have to have had the account for a minimum amount of time (Issue 1 and Issue 2 you needed to have had the account open for over 6 months, Issue 3 is shorter); and there was also a rule on the earlier issues that you had to be making regular contributions to the account - although the minimum is only £50pm and you can miss a few months. Also with the earlier issues the only way to get the money out of the account was to close the account, no withdrawals allowed.

The 'help to buy' is a government approved scheme through a special restricted type of ISA and available through various banks and building societies like Nationwide and Halifax. As the maximum that can be contributed is heavily restricted (£1000 initial and £200pm thereafter), interest rates are decent (especially at Halifax). The main advantage (and the reason it is restricted in how fast you can contribute to it) is that if you use the proceeds of the account to buy a house, the government gives you a 25% top up (so £2000 becomes £2500 or £10000 becomes £12500 as if by magic - up to maximum of £3000 free money).

The point is, the help to buy (government scheme, lots of banks) and save to buy (Nationwide's own product) are different schemes, and there is nothing to stop her having a Nationwide save to buy saver and a Halifax ISA.

If she gave up on having the save to buy at Nationwide, leaving it dormant and just stopped paying into it, she would potentially miss out on the access to the 5% mortgage and the cashback, depending on the terms and conditions. http://www.nationwide.co.uk/support/support-articles/terms-and-conditions/save-to-buy-terms-and-conditions Their very latest version of the scheme might not require ongoing monthly minimum contributions but if you plan to stop paying into that account it is worth checking your terms. I was using the save to buy account a few years ago and had been keeping to the terms, and did end up getting a Nationwide mortgage - but didn't need to use the special 'save to buy' 5% mortgage in the end as I had a bigger deposit anyway and found a better deal among their other products. I just closed the savings account a few months later.

One thing to be aware of is that Nationwide's own version of the "Help to Buy" ISA gives you the same access to their exclusive 5% save-to-buy mortgages that their Save to Buy savings account does. So really if she got one of those, she wouldn't necessarily need to keep the Save to Buy account at all. She could look at other places to put the money which pay better rates on her £12k. Like for example the Santander 123 current account, while being nothing to do with saving for mortgages, pays 3% on anything up to £20k and so would be earning her a decent chunk more interest than her Nationwide save to buy.

If she used the Halifax Help to Buy ISA instead of the Nationwide one, she would benefit from their 4% interest rate instead of 2%, but it is only on the relatively small amount deposited (the £1000 at opening and £200pm) so in the first year the extra 2% is only going to be worth an extra £40 or so compared to the Nationwide version of the ISA.

£40 is not a lot in the grand scheme of things. (i.e., compared to the total interest on all the rest of the deposit, the free government money, the price of a house and stamp duty, solicitors, surveys, mortgage arrangement fees, the possibility to get a house years earlier with a 5% product instead of a 10% one, the amount of cashback that might be available on the savetobuy scheme). There is plenty to consider ; the overall interest rates achievable are more of a factor if she is looking at buying a house in five years rather than one year.

masonic

It will depend on her circumstances, but if your daughter is planning to save for several years, then the benefit of getting 4% in the Halifax ISA is likely to outweigh running a 2% ISA at Nationwide for 2 months longer.

I don't think there is anything stopping you initiating a partial transfer from the NW ISA right now to fund the initial deposit if it contains subscriptions from previous tax years, but she would not be able to subscribe any new money until the next tax year.

bowlhead99

The OP did not actually say the NW save to buy account was the ISA version so it may be that there have been no isa contributions made at all in the current tax year and the Halifax one could be opened right away without needing to arrange a formal transfer of existing ISA funds. Though if the Nationwide save to buy terms don't allow partial withdrawals, only closures, it won't be possible to just transfer £1000 of the £12000. A closure wouldn't be the end of the world, because somewhere like Santander will beat the 2% nationwide rate anyway, but abandoning the Nationwide products would mean missing out on potential cashback and the exclusive 5% mortgage deal. Of course, other providers might have better 5% mortgage deals if she still actually needs one when she's ready to buy the house.

masonic

bowlhead99 wrote: »

The OP did not actually say the NW save to buy account was the ISA version...

You are right, although I inferred from "as long as she doesn't add to the NW account I assume that doesn't break any ISA tax rules?" that the NW account must be an ISA? Maybe the OP could clarify.

seanhb

masonic wrote: »

You are right, although I inferred from "as long as she doesn't add to the NW account I assume that doesn't break any ISA tax rules?" that the NW account must be an ISA? Maybe the OP could clarify.

Her current nw save to buy is an isa version.

seanhb

Thanks to all for the advice, it has clarified a few things. We will now weigh up the options. Main difficulty is she has no current plans to buy, and thus timing is the key.