Help to Buy ISAs cannot be used for house deposit at exchange of contract

23 Aug 2016

The effectiveness of the government’s Help to Buy ISA scheme has been questioned since first time buyers are not able to withdraw the funds when they are required at point of exchange of contracts when buying their first property

The detailed government guidance states that the Help to Buy ISA bonus must be claimed on the first time buyer’s behalf by a solicitor or conveyancer ‘in anticipation of the completion date’.

The downside is that it cannot be used for the deposit due at the point of exchange on contract, when buyers have to lay down the deposit amount, since the bonus only comes into effect on completion.

This quashes the initial premise of the Help to Buy ISA as a mechanism to help first time buyers save for a deposit.

The guidance states that the ‘bonus has to be included with the funds consolidated at the completion of the property transaction, and will be controlled by the solicitor or conveyancer’.

The government guidance states: ‘When you are close to finishing your purchase, you will need to let your Help to Buy ISA provider know, and close your account.

‘Don’t just withdraw all of your money – let your ISA provider know that you are closing your account and they will provide you with a closing letter.

‘You will need to take this letter to your solicitor or conveyancer so that they can apply for your bonus. ‘

The bonus cannot be used for solicitor costs, estate agent fees or any other indirect costs associated with buying a home.

Launched on 1 December 2015, Help to Buy ISAs are targeted at first time buyers, providing government support for people to save a deposit. Under the Help to Buy ISA scheme, if you save up to a maximum of £200 a month towards a first home purchase through a Help to Buy ISA, the government will boost your savings by 25%. This is the equivalent of a £50 bonus for every £200 saved. The scheme is capped at a £3,000 tax-free bonus on savings of £12,000. In addition, there is no interest on the government’s contribution.

The scheme is only open to first-time buyers and cannot be used for buy-to-let purposes. The bonus element must be claimed within 12 months of withdrawal and closure of the ISA.

Andrew Tyrie, chair of the Treasury select committee, is set to call up the Chancellor, Philip Hammond to explain the terms and conditions of the scheme to MPs on the committee, when parliament returns in October.

Accounts are assigned to individuals so a couple can each have a Help to Buy ISA for a joint purchase, rather than one per home so those buying together can both receive a bonus.

It adds: ‘First time buyers will then receive the government bonus at the point they are ready to buy their first home.’

The government’s aim is to provide a scheme that offers a tax-free government bonus to help people who are saving up to buy a first home worth up to £450,000 in London or £250,000 anywhere else in the UK.

Each first time buyer can only open one Help to Buy ISA during the lifetime of the scheme. Since the launch of the Help to Buy ISA, 1,490 property completions have been supported by the scheme, between 1 December and 31 March, according to the June 2016 Treasury Help to Buy ISA scheme Quarterly Statistics.

The number of first-time buyer numbers has halved since 2002, from a high of 50,000 plus to current levels of around 27,000 property purchases a year.

The Help to Buy ISA is available through banks and building societies. It cannot be used in conjunction with any other annual ISA products.