The most recent figures from the Land Registry show that average house prices in England and Wales are now £237,721 so first time buyers will need all the help they can get to afford a home. The Help to Buy ISA was flagged as the solution for first time buyers as it’d help bridge the gap between their savings and the deposit for their new home.
Its stated purpose was “to tackle the biggest challenges facing first time buyers; the low interest rates when you build up your savings and the high deposits required by the banks”. The scheme allows first time buyers to get a 25% bonus on top of their savings and to benefit from tax free interest. As it stands, home ownership is at an all-time 30-year low with only 63% of people living in a home they own - the Help to Buy ISA was brought in to tackle this.
The Help to Buy ISA Scheme, open to first time buyers only, offers a bonus of 25% on top of the money saved – subject to terms and conditions – with a maximum bonus of £3,000 on offer.
The challenge that unwary first time buyers face is that buried deep in the terms and conditions for the Help to Buy ISA are clauses that could make or break their dream of buying their first home. We expose some of these issues in the following article.
1. You can not use your bonus to fund your deposit
One of the greatest flaws in the Help to Buy ISA rules is that fist time buyers cannot use the bonus to fund their deposit. The rules state:
“The Help to Buy: ISA bonus must be claimed on your behalf by a solicitor or conveyancer in anticipation of the completion date. The bonus must be included with the funds consolidated at the completion of the property transaction. The bonus cannot be used for the deposit due at the exchange of contracts, to pay for solicitor’s, estate agent’s fees or any other indirect costs associated with buying a home.”
For many first time buyers who were relying on the bonus to make up the difference of the 10% deposit they needed to actually buy the property were forced to carry on saving and watch the property they wanted to buy slip away.
2. Priced out of London
The scheme rules exclude the use of the bonus if you are buying a home in London that is over £450,000. With the current average house price in London being £488,729, first time buyers are finding that when they are finally about to buy in the nation’s capital, that the bonus they had planned for can’t be used because of their property’s value.
The following boroughs are what are classed as being in London:
The City of London, Camden, Greenwich, Hackney, Hammersmith and Fulham, Islington, Kensington and Chelsea, Lambeth, Lewisham, Southwark, Tower Hamlets, Wandsworth, the City of Westminster, Barking and Dagenham, Barnet, Bexley, Brent, Bromley, Croydon, Ealing, Enfield, Haringey, Harrow, Havering, Hillingdon, Hounslow, Kingston upon Thames, Merton, Newham, Redbridge, Richmond upon Thames, Sutton and Waltham Forest.
3. Shared Ownership Property price not your share
With shared ownership, first time buyers get to buy a share of a larger value property; either 25% or 75%. The challenge though is that if the property is in London and worth more than £450,000 then regardless of the share the first time buyer is getting, they will not be able to use their bonus to fund their purchase.
What should first time buyers do?
It is clear the scheme has its flaws. The best advice is to ensure that you have saved your 10% of the purchase price to fund the deposit and then look to use the bonus to fund the balance on completion and in turn mean you’ll need a smaller mortgage.
There is nothing you can do about be excluded because of the property value.
Co-founder of SAM Conveyancing
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