Help to Buy Isa scheme now available for first-time buyers
First-time buyers will be able to save into one of the Government's Help to Buy Isas from Tuesday as competition to offer attractive rates heats up.
The Help to Buy Isa rates unveiled so far have been as high as 4% as well as many deals with a rate of about 2% to choose from.
These sit well above the average cash Isa rate on offer, which is just 1.48%, according to financial information website Moneyfacts.
The Government will also chip in cash under the scheme - enabling people to build their deposit more quickly.
It means first-time buyers saving for a deposit will be able to put up to £200 a month in a dedicated Isa that the Government will top up by 25% - meaning a £50 bonus for every £200 saved.
The maximum Government bonus is £3,000. To receive that, someone will need to have saved £12,000.
To kick-start their account, first-time buyers can also open their account with a one-off lump sum of up to £1,000 in addition to the monthly £200 maximum deposit.
Couples will also be eligible if they are buying together, meaning a potential boost of up to £6,000 towards a deposit.
Martin Lewis, founder of MoneySavingExpert.com, described the deals as a " no-brainer for anyone saving for a home for the first time".
He said: " Nothing comes close to the fact they're adding 25% on top of both what you've saved and the interest on the first £12,000 - giving a maximum bonus of £3,000.
"The worst risk is you decide against buying a house (or buy a non-qualifying one), but even then all that means is you don't get the bonus; but with Help to Buy Isa interest rates as high as 4% tax free, it's still a pretty decent option."
Mr Lewis suggested two reasons behind the favourable rates being offered by providers.
The first is that there is a limit on the amount of cash that savers can put in them - and the second reason is the hope savers will stick with their Help to Buy Isa provider when it comes to taking out a mortgage.
Savers are not obliged to take out a mortgage with the bank or building society providing their Help to Buy Isa - but many may go on to do so.
Mr Lewis also told the Press Association it would be a "mistake" for people planning to buy a home soon to assume it is too late to be worth saving into a Help to Buy Isa.
The minimum Government bonus is £400, meaning someone needs to have saved at least £1,600 into their Help to Buy Isa before they can claim their bonus.
But with people initially being able to put in £1,000 in addition to the £200 a month they are allowed to put away, it could only take some people a few months to qualify for this bonus.
The annual interest rates announced so far under the scheme include a 4% rate from Halifax while Nationwide Building Society, NatWest, HSBC and Aldermore are offering savers annual interest rates of 2%.
Santander will pay a preferential rate of 2% to 123 World and Select customers, and a 1.5% rate to all other customers.
Chancellor George Osborne last week unveiled a package of housing measures to help turn "Generation Rent" into "Generation Buy".
But despite the extra help to build up a deposit, aspiring first-time buyers could find themselves facing added competition for properties in the coming months.
The Chancellor said last week that from April 1 2016, people buying additional properties, such as buy-to-let properties and second homes, will pay an extra three percentage points above current stamp duty rates.
Some experts have predicted this could spark a rush of buy-to-let investors snapping up properties before the changes come into force.