(The following article has been taken from Essentially Mortgages, written by Financial Associates, Q4 2016, Issue 2.)
There has been a great deal of media commentary recently on how the bonus payable under the government’s Help to Buy ISA really works.
Savers aged 16 or over can open their ISA with an initial deposit of £1,000, which qualifies for a government bonus of £250. Savers can then contribute a maximum of £200 each month, with the government contributing a bonus of up to £50 on top. In order to claim the maximum bonus of £3,000, they need to save £12,000.
The bonus rules explained
The Help to Buy ISA bonus can only be used as part of the final completion monies; it cannot form part of the deposit paid at exchange of contracts. It’s also worth noting that you can only use your bonus towards the cost of buying a property, it can’t be used to pay any other charges such as stamp duty, conveyancing fees or house surveys. This has always been the case since the inception of the scheme, and most solicitors and conveyancers were aware of the restriction from the start.
A potential solution
While the deposit paid on exchange of contracts is usually 10% this isn’t legally binding. If you tell your solicitor or conveyancer at the outset that you will be using your Help to Buy ISA bonus cash as part of your payment, they should be able to agree a 5% deposit instead.
So should you still take out a Help to Buy ISA? Even if you don’t get your bonus until completion, the tax-free cash will still come in useful, and you receive interest on your savings too.
Would you like to talk to an expert about mortgages?
Steve Jevons of Financial Associates assists Naylor Powell's clients with their mortgage, and financial planning needs. He searches for the best deal as a 'whole of market' mortgage broker, and helps clients from start to finish with the mortgage process. Whether you are a First Time Buyer, moving home or looking to save money on your buy-to-let portfolio, Steve is delighted to offer home visits, or in Naylor Powell's offices by appointment. With over 30 years’ experience in Financial Services, he strives to give straightforward, helpful advice, and aims to make the process as smooth, and as stress free as possible.
Telephone: 01452 912357
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