The Daily Telegraph - Saturday - Money
The great Help to Buy Isa shambles
Few savers, if any, realised that they wouldn’t be able to use their bonus for a deposit, says Amelia Murray
In the seven days since The Telegraph disclosed the fatal flaw in Help to Buy Isas – which prevents home buyers using the 25pc Government bonus when they exchange contracts on their property – this newspaper has been inundated with emails from readers left in the lurch. Some buyers have been forced to borrow from family and friends, often at the eleventh hour, their transactions hanging in the balance.
Others, who cannot quickly raise the extra funds, are having to defer their planned property purchase for a year or more.
Paul Fickling, 32, learned just two weeks before he was due to exchange contracts that he could not use his Isa bonus for his deposit. It meant he was suddenly short of £500.
Like almost all Help to Buy Isa account holders, he was banking on using the Isa savings and bonus which together would have made up more than a third of his £6,750 deposit for a £135,000 apartment in Norwich. Because the bonus wasn’t available, he had to borrow the money from his mother, a pensioner, in order to proceed (see report, right, for more on Mr Fickling’s case and others like it).
While the shortfall in his case was small, for those using the accounts over longer periods – they have only been available since December – the problems are likely to be far greater.
And, as Mr Fickling and others quickly point out, even small sums play a vital part in the initial deposit. Using the money to reduce the size of a mortgage at completion is less valuable.
Help to Buy Isas were warmly
welcomed as a way to help first time buyers amass a deposit.
The accounts allow savers to deposit £1,200 in the first month and contribute a further £200 each month afterwards.
The balance is then boosted by a 25pc government bonus up to £3,000 when the account is closed.
At their inception, George Osborne described the accounts as offering “direct support” for “anyone saving for the deposit on their first home”.
Many providers, such as Halifax, Natwest and HSBC also state this explicitly.
For example, Natwest’s “Help to Buy Isa: At a Glance” page says: “Saving for a deposit to buy your first home can be a challenge, but now there’s a way you can get a helping hand.”
Account holders are only now discovering the bonus is not applied until “completion” – when the buyer takes formal possession of the property – and therefore cannot be part of the deposit at the exchange stage.
Buyers could of course withdraw their Isa savings in order for these to go toward the deposit, but they would not have the benefit of the bonus, which only gets paid at completion.
With newbuild homes, which are popular with first-time buyers, the delay between exchange and completion can be lengthy, adding to the problem.
Many have told The Telegraph that their banks, building societies and solicitors do not seem to have any idea of how the account works.
While in some cases conveyancers can negotiate a smaller deposit with the seller, numerous readers say they have been wrongly advised as to when they should close the account and when they will receive the bonus.
How the penny dropped
In contrast to the response from readers, young homebuyers, MPs, consumer activists, mortgage brokers, banks and others, the Treasury tried to suggest the bonus mechanism had been known about all along.
A spokesman said: “It has always been the case that money saved in a Help to Buy Isa is for an exchange deposit, with the bonus of up to £3,000 per Isa from the Government going towards the total funds available for the property transaction.”
Yet almost immediately after the Treasury was alerted to our first story, and ahead of its publication, officials quietly amended the online explanatory notes to the scheme.
The initial wording had said: “When you buy your first home, your solicitor or conveyancer will apply for your government bonus.
“Once they receive the Government bonus , it will be added to the money you are putting towards your first home.”
This was amended to include: “...the bonus cannot be used for the deposit due at the exchange of contracts.”
Bank staff are also privately telling customers they were misled over Help to Buy Isas.
Natwest, in response to a customer complaint, wrote: “I appreciate this may not be the best news, but we were also under the same impression given information from HMRC that this would be towards the deposit.
James Daley, founder of campaign group Fairer Finance said: “The fact that the Treasury has changed the wording is effectively admitting they are wrong.”
Mr Daley said he believes there has been a breach of the Consumer Rights Act 2015.
He said: “The Act says that contracts must be clear and transparent.
“But in this case it sounds like lots of people signed up for the Isas without knowing how they worked.”
Mr Daley said a first time buyer may have a claim against their providers if they incurred significant loss because they relied on the bonus when buying their property.
He said: “The claim would be against the provider as they have the duty to the customer.
“If need be, banks can take it up with the Treasury.”
Conservative MPs on the Treasury Select Committee and consumer campaigners swiftly backed this newspaper in a call to urge the Government to let savers use Help to Buy Isas for deposits at exchange.
Ashley Seager, co-founder at the Intergenerational Foundation, a charity that aims to protect the rights of younger people, described the Help to Buy Isa shambles as “another blow for those struggling to get on the housing ladder.”
“Longer-term, however, much more serious measures are required to increase the supply of housing in the face of high demand.”
David Willetts, a Conservative politician and chairman of the Resolution Foundation, a think tank, described the flaw as “perverse”.
He said: “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.”
Martin Lewis, consumer campaigner and founder of MoneySavingExpert.com, also backed the Telegraph’s call for a rule change.
He said that although he had explained the catch in the guides published on his website, the true scale of the problem was only just becoming apparent.
‘Bank staff are privately admitting they, too, had a different impression’ ‘Given that the Government wants to help home buyers, this is perverse’
Have you been caught up in the Help to Buy Isa mess? Email amelia.murray@telegraph.co.uk