BUYING & SELLING HOUSES  

Help to Buy ISAs - What You Need to Know

In 2015 the then Chancellor George Osborne introduced the Help to Buy ISA Scheme which was aimed at giving first time buyers a 25% boost on their savings towards the purchase of a first home. From December 2015 first time buyers were offered the opportunity to open a Help to Buy ISA account with a participating bank.

The scheme requires each saver to deposit £200 a month into their Help to Buy ISA account up to a maximum of £12,000.00. The saver must have a minimum of £1,600 saved in the account in order to receive any bonus. An initial £1,200 deposit may be deposited on opening the account to allow the saver to reach the minimum savings threshold more quickly.

In August 2016 the scheme came under fire from the media when it was reported that the Help to Buy ISA Scheme was a ‘scandal’. The media reported that the bonus could not be used towards a house deposit. The reporting was vague and it caused confusion among first time buyers. In response the Treasury claimed that it had always made the mechanics of the Scheme clear from the outset and that the bonus was only ever payable on completion of the house purchase. The Treasury has dismissed any negative press and has insisted that the Scheme has already paid out thousands of bonuses.

It is worth noting that the deposit referred to by the media is a contractual deposit or holding deposit rather than a mortgage deposit both of which are very different. A contractual deposit is often not paid when there is a short period of time between exchange of contracts and completion. A contractual deposit however will almost always be payable in repossession transactions and often in new build transactions and there is rarely any negotiating room. If however the contractual deposit is payable and the purchaser is relying on their bonus to make up the contractual deposit then that is where problems arise. In this instance the Help to Buy ISA Bonus therefore only aids purchasers who complete with a single payment of the full purchase price i.e. when the mortgage advance and balance monies are paid at once. An example of how to overcome this problem is to have your solicitor inform the vendor that you are relying on your bonus to complete. A vendor therefore may consent to a purchaser completing with a single payment of the full purchase price.

The Treasury has recently announced the introduction of the Lifetime ISA which will come into affect in the first quarter of 2017. The lifetime ISA acts in a similar way to the Help to Buy ISA and the Treasury has indicated the bonus could potentially be used for a holding deposit on a first home on exchange of contracts, providing more flexibility to prospective first time buyers. There has also been further suggestion that Help to Buy ISA holders will be able to move their funds from their Help to Buy ISA to a Lifetime ISA account shortly following its introduction. It is expected that the Help to Buy ISA scheme will cease in 30 November 2019 being the last date in which Help to Buy ISA accounts can be opened.

We are a firm on the Help to Buy Panel and we have experience with dealing with the Help to Buy ISAs on a practical level. If you have any questions as to how this may affect you we would suggest that you make contact with our department at the earliest opportunity.

 

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