First Time Buyers Should Know
The Help to Buy ISA is promoted as a way in which first time buyers can get help from the government to save for the deposit on their first home. However, it has come to light last month that the claim for the 25 percent government bonus can only be made upon completion of the property.
This article does not constitute advice.
Professional advice should be taken prior to acting on any part of it.
Help to Buy ISA
The Help to Buy ISA is a type of Individual Savings Account (ISA) specifically designed to help first time buyers get onto the property ladder. Contributions by the saver are matched with a 25% government bonus, up to a maximum of £3,000.
For many it has been a no-brainer. Save the money away and get free money from the government to top up the deposit.
Whilst it does take a while to accumulate the full government bonus, 4.5 years in total, for some savers this is something they have been rigorously working towards, regularly putting in the maximum monthly contribution of £200, so they can reap the most back in reward to buy their first home.
Help to Buy ISA – can I Invest more than the Minimum?
The 25% bonus is only on completion
Most savers as well as many banks and lenders were under the impression that the Help-to-Buy ISA, including the government bonus, could be used to go towards their deposit.
However, as the deposit is required at the exchange stage of the property transaction, it is only the saved funds that can be withdrawn from the account – the government bonus follows when the property transaction has completed.
This news came after a series of events left ISA savers short of money for their deposit as they were relying on being able to use their government bonus on exchange.
Some savers have had to borrow money to bridge the gap, and others have even had to pull-out of their purchase as they simply don’t have enough funds.
A change in legislation is requested
Market experts are calling for a change in legislation. As it stands right now the Help to Buy proposal is much less attractive than it was before, as it is typically the deposit which first time buyers struggle with the most.
“Given that the Government wants to help first time buyers, it is very puzzling that a flaw in the system has emerged. This doesn’t seem to be how the scheme was supposed to work and now we need to iron out this defect.” David Willetts, Politician and Chairman of the Resolution Foundation.
In the meantime, it is important for first time buyers saving into a Help to Buy ISA to speak with their financial adviser and mortgage broker so the correct steps can be actioned for your own property purchase, especially if this is happening in the near future.