Government clarification over ISA deals blow to potential homeowners

First-time buyers will not be able to put the Government’s cash bonus from its flagship Help to Buy ISA towards the initial deposit required to buy a home.

It’s emerged that firsttime buyers have to save the entire deposit needed to exchange contracts – the point at which the deal becomes legally binding – themselves.

The all-important ‘taxfree bonus’ from the Government available under the scheme is only paid later at the point of completion.

A Government spokesperson said this arrangement could still help to, ‘boost buyers’ overall equity in their new home’ as it is possible to pour further cash into reducing the size of your mortgage when the deal completes.

For example, on a £200,000 house, you could put down an initial 10 per cent deposit worth £20,000 at exchange, and a further 5 per cent worth £10,000 at completion, bringing down the mortgage from 90 per cent to 85 per cent of the property value.

The Help to Buy government bonus in this instance, could only be used for the extra 5 per cent paid on completion.

The Telegraph, which first reported the story, published a letter from Simon Kirby, economic secretary to the Treasury. It said: “When calculating the size of a mortgage, lenders will seek evidence of the funds available for a deposit.

“This includes a consideration of both the money in a Help to Buy ISA account and the size of the forthcoming bonus.”

It’s a major blow to firsttime buyers because the need for an initial deposit is widely seen as one, if not the largest obstacle to home ownership.

First-time buyers typically need to put down a minimum deposit worth between 5 per cent and 10 per cent of the total cost of the house in order to exchange contracts.

But, for first-time buyers who are able to raise the initial 5 per cent or 10 per cent deposit off their own backs, the Help to Buy ISA bonus can help reduce their subsequent mortgage repayments.

The then-Chancellor, George Osborne launched the Help to Buy ISA at the 2015 March Budget, with the aim of helping first-time buyers save for a deposit.

He said of the scheme: “This new ISA provides direct government support to anyone saving for the deposit on their first home.

“For every £200 you save, the Government will help you with another £50. Added up, the Government will give you up to £3,000 towards your first home.”

There is a limit on the value of property bought through the Help to Buy ISA of £450,000 in London and £250,000 outside the capital.

In June, the Government boasted that more than 500,000 people had opened Help to Buy ISAs. And Mr Kirby confirmed that 22,000 homeowners have taken advantage of the ISA.

The Government website today explained: “You can only claim your bonus funds when you are buying a home – and the money has to go towards the completion of your property, so you can’t use it to pay your solicitor’s, estate agent’s fees or any other costs associated with buying a home.”