It has always been difficult for most first time buyers to get on the property ladder. Maybe not anymore as the government has launched the new Help to Buy ISA scheme.
So what’s it all about?
It is a tax free cash savings plan which enables banks to provide a slightly higher rate of interest when compared to standard ISA’s. The interest rates on ISA’s have not been that great lately, however, HM Treasury is offering a 25% bonus of the closing balance of your savings ISA, however, this is subject to terms and conditions. So for every £200 you save, the government will give you £50 but the minimum amount you must save to be eligible for your bonus is £1,600. The maximum bonus you can receive from the government is £3,000 so would have to save £12,000.
Here’s how it works
The maximum amount you can save each month is £200 but you are able to open a Help to Buy ISA with an initial deposit of £1,200. Therefore, if you opened the ISA with £200 it would mean you could be saving for up to 5 years (if you saved the maximum £12,000 towards a deposit) but this period would be reduced if you opened the ISA with say a maximum amount of £1,200.
If you are buying a property jointly with another person, you cannot open a joint ISA but two buyers can benefit from the Help to Buy ISA scheme providing they are buying the same house. The minimum age to open a Help to Buy ISA is from the age of 16 and unfortunately no-one else can open the scheme on your behalf, e.g., your parents would not be able to open an ISA for you.
How do I apply for my bonus?
Provided you have saved a minimum of £1,600, you would be able to apply for your bonus. Once you have found your home, your mortgage lender will ask you to instruct an eligible conveyancing lawyer who is authorised to apply for your bonus payment. At AWD we are pleased to announce that Paul Davies, who is the Head of Conveyancing Department, is an eligible conveyancer. The scheme allows lawyers to charge £50 plus VAT for the work involved to submit your application to obtain your bonus. Do not withdraw the funds from your ISA until we advised to do so, all you need to do to begin with is write to your Help to Buy ISA provider to let them know that you will be closing your ISA as soon as you have found a property to purchase. Your provider will give you a closing letter which you take to your conveyancing lawyer so that they can apply for your bonus and add the bonus amount to the money from your ISA.
What happens if my purchase falls through?
If we have claimed your bonus and the purchase falls through, you are allowed to re-open your Help to Buy ISA and your conveyancer can return your bonus to the government. Your conveyancer can provide you with a failure notice which you take to re-open your Help to Buy ISA. You can use the amount which you closed your account with to re-open your ISA, so if you save the maximum of £12,000 you can use this amount as a deposit but the monthly payments thereafter will be £200.
Is there a maximum property price in which to quality?
Yes, unfortunately there is and for properties being purchased in London, the maximum limit is £450,000 but for any property out of London and within the UK, the maximum limit is £250,000. The property you purchase must be the property you are intending to live in, so you would not be able to purchase a buy to let property or rent the property out after you have bought it and you must purchase the property with a mortgate.
What will my Help to Buy: ISA bonus be?
HM Treasury is offering a 25% bonus of the closing balance in your ISA which includes the money you have deposited into your account as well as any interest. You should note that you will need to have saved at least £1,600 into your ISA before you can claim the minimum bonus of £400. The maximum government bonus that you can receive is £3,000 which will be achieved if you manage to save £12,000 into your ISA. Since you can save a maximum of £200 per month this would represent approximately five years worth of savings. This period would be reduced if you make an initial deposit into the ISA which can be up to £1,000.
Savers can open a Help to Buy ISA for a 4 year period after the date of the scheme opens, the schemes started on the 1 December 2015. However, once an account is open, there is no time limit on how long a person saves into the scheme and no time limit on when they can use their government bonus.
The scheme requires an eligible conveyancer (administrator) such as Paul Davies from AWD Law to confirm your eligibility to manage the bonus claim. Paul is allowed to charge £50 plus VAT for his work involved in submitting your application to obtain your bonus. Paul will need you to provide the following:-
The closing statement of your Help to Buy ISA;
- A First Time Buyer Declaration which confirms that you do not own and have never owned anyinterest in land anywhere in the world.
- Details of the property you are purchasing. We will let you know what these details are at therelevant time.
How and when should the application be made.
Paul will manage the application and guide you through the process, however, the application should not be made until good progress has been made on your purchase. The actual application takes up to 5 business days with the bonus funds being received in our client account to take up to 15 business days. Your bonus will be held in our client account until completion of your purchase and completion of the purchase must take place within 3 months of us receiving your bonus or the bonus has to be sent back to your ISA provider and then we will have to re-request the funds. You will still need to provide us with your deposit towards the purchase of your property which varies in accordance with the lender you use but most often than not it is normally around 10% of the purchase price
The contents of this article are intended for general information purposes only and shall not be deemed to be, or constitute legal advice. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of this article. For advice regarding property purchases, please contact Paul Davies on 01329 232314 or by email firstname.lastname@example.org