The Help to buy ISA scandal
In this brief blog, we are going to talk about the help to buy ISA scandal. In fact, the help to buy ISA scandal has been a few different things. You must remember that the help to buy ISA ends in November 2019 and you must claim your help to buy ISA bonus by December 2030.
How does the help to buy ISA work?
The help to buy ISA is a first-time buyer government scheme which was created to allow you to get an extra hand when saving for a mortgage deposit.
With the help to buy ISA you are able to save in a tax-free ISA account with an initial lump sum of £1200 and a maximum of £200 every month after. The government will pay you a bonus of 20% on your closing balance once you request your help to buy closing letter. This can be up to a maximum of £3,000 and you will need to have saved a maximum of £12,000.
Eligibility for the help to buy ISA
To be eligible for the help to buy scheme you will need to meet the below requirements
You must be over 16 years of age to be eligible for the help to buy ISA
You have not and will not go over your tax year ISA allowance. It is £20k for the 2019/2020 tax year
You cannot have another hep to buy ISA except you are closing your current help to buy ISA and transferring it to your new help to buy ISA account
You must have a national insurance number
You are a resident in the UK or can prove established residency via your tax obligations or through marriage or civil partnership with a UK resident
You cannot have another cash ISA in the same tax year except it is held with the same help to buy ISA provider who holds your help to buy ISA account.
You don’t own any land or house anywhere in the world
You have not already received a help to buy ISA bonus except you have and it has been paid back to the relevant body due to your home purchase falling through and not being completed.
You cannot use the help to buy ISA if you intend to rent out the property
The maximum property price you can use the help to buy ISA on is £450,000 within London and £250,000 outside London
The help to buy ISA account can only have one holder
The first help to buy ISA scandal
The first help to buy ISA scandal is the one where the telegraph revealed that the Government can face legal action due to a clause in the government’s help to buy ISA agreement. The help to buy ISA scandal has been all over the news recently so you may have already heard of this, if not, read on.
The help to buy ISA scandal that the telegraph reported was the fact that the help to buy ISA could not be used by prospective first-time buyers to pay towards their mortgage deposit for their new home.
The help to buy ISA scheme has been very well received. Over six hundred thousand (600,000) people have used the help to buy ISA to get on the property ladder but when it was launched it was launched claiming it helped prospective first-time buyers to save a mortgage deposit.
The help to buy ISA scandal is not only the fact that you won’t be able to use the help to buy ISA towards your mortgage deposit but also the fact that the help to buy ISA bonus is only paid at the time of completing the home purchase. A lot of first-time buyers will state that this makes the help to buy ISA scheme essentially useless as it would not help people who were trying to save a mortgage deposit
Those looking at it from the government’s point of view will say that the reason the scheme has been put in place like this is to prevent people using the scheme for anything other than buying a home.
Most first-time buyers in this position will instead have to get loans from their family members.
When buying a new home you would have usually needed a 20% mortgage deposit on the property you wanted to buy but there are now a lot of mortgage lenders who will offer you a 5% mortgage.
The help to buy isa scandal cannot be used towards this mortgage deposit but instead it will be used towards the direct costs of the mortgage such as the mortgage application fees etc. It cannot be used towards your mortgage deposit, solicitor fees or home insurance.
The treasury did as much as admit that the clause in the help to buy ISA was to prevent people from exploiting the help to buy ISA scheme and not actually buying a home.
To further highlight the help to buy ISA scandal, the government’s help to buy website states “The bonus cannot be used for the deposit due at the exchange of contracts, to pay for solicitor’s, estate agent’s fees or any other indirect costs associated with buying a home.”
A lot of high street banks initially marketed the help to buy ISA as a product which would allow you to boost your mortgage deposit savings but they will now have changed these advertisements to reflect the revelation of the help to buy ISA scandal.
HSBC’s website used to define the help to buy ISA as : “Saving up for a deposit for your first home? Open an HSBC Help to Buy ISA and the UK Government will reward you with an additional 25% of the amount you save, up to a maximum of £3,000.” but they have now changed this to say “ Save with the HSBC Help to Buy: ISA and you could fast-track your way to purchasing your first home. “ and add “ The bonus cannot be used for the deposit due at the exchange of contracts, nor can you use it to pay for your solicitor’s or estate agent’s fees, or any other indirect costs associated with buying a home. “ since the help to buy ISA scandal broke out.
The high street banks aren’t to blame although they could and should have done much better fact checking before placing misleading advertisements on their websites about a financial product which users could be due compensation from the financial services compensation scheme if they have been mis sold.
HM treasury who administer the help to buy ISA scheme have since updated their website to clearly inform prospective first -time buyers that the funds cannot be used towards a mortgage deposit.
The help to buy ISA scandal revealed how little help those saving a mortgage deposit were really getting.
The Head of Financial Planning at Hargreaves Lansdown, Danny Cox, adds: “Hundreds of thousands of Help to Buy ISA savers risk finding a last-minute hole in their finances.”
HSBC insists that it has trained staff to ensure they provide all of the relevant information when a customer opens an ISA.
A Halifax spokesperson says it would not be appropriate for it to go into details of the scheme rules with customers, as the Treasury has already defined them.
NatWest believes the scheme has helped some of its customers buy a home.
A Treasury spokesperson states: “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 toward the total funds available for the property transaction.”
The Managing Director of the National Association of Estate Agents, Mark Hayward, responds to the scandal: “This is quite an extraordinary step from the Government and providers to effectively change the goal posts for first time buyers who have saved in a Help to Buy ISA.
Consumers have been putting money aside on the basis that they believed it would be applied to their deposit on a new home. To now clarify that it is not actually available until completion is the perfect example of a painful lack of transparency, and frankly, nothing short of deception.
“First time buyers are already struggling with getting onto the housing ladder, and this much hyped initiative was welcomed at the time as a way of helping them, but in fact could have ended up costing buyers if they have gone ahead with a purchase believing that the bonus counted towards the deposit.”
A lot of people aren’t actually aware of the help to buy ISA scandal and how the help t buy ISA can’t be used towards a mortgage deposit.
If you were planning to use the help to buy ISA as a mortgage deposit and you realise at the last moment that the Help to buy ISA cannot be used as a mortgage deposit then your best bet would be to borrow some money from your family members or reduce the amount of mortgage you need by putting a bigger mortgage deposit down from your savings if you have any.
The second help to buy ISA scandal
The second help to buy ISA scandal may be defined by one of the requirements of the help to buy ISA. It states that the help to buy ISA can only be used on new build homes.
The reason why this is a help to buy ISA scandal is simply because new build properties tend to be overpriced by 15% and even more in some cases. This means that you are getting a mortgage where the true value of your home may actually be less than the mortgage you have obtained. This means if you want to remortgage in the future you will find that you don’t have any or enough equity in your property and are not able to remortgage. This means you have no joined the hundred of thousands of mortgage prisoners in the UK.
The help to buy ISA has increased the profits of the new home builders in the UK but may have done little to reduce the amount of people who are able to buy a property for the first time in the UK.
Reallymoving conducted research that found out that those using the Help to Buy scheme pay 8% more for a similar property than those that did not use the scheme.
The report, focused on 70,000 first time buyers (FTBs), found that those opting to avoid Help to Buy paid an average of £257,908 for a brand new property; in comparison, those using Help to Buy paid £277,968
Rob Houghton, CEO of reallymoving.com said: “The Help to Buy scheme has provided a leg up onto the housing ladder for many first time buyers but this data suggests that first time buyers may not be getting such a good deal after all. When they come to sell this could increase the risk that their home isn’t worth what they paid for it.”
The third help to buy ISA scandal
The third help to buy scandal is the fact that 1 in 3 people who used the help to buy ISA were actually able to buy without the help to buy ISA and one in twenty five had household incomes of £100,000 annually and one in ten had annual incomes of eighty thousand pounds. This of course means that most people who actually need the help to buy ISA are not benefitting from it due to fraudulent claims.
Whilst the help to buy ISA scandal is a lot to worry about the real help to buy ISA scandal is how little you are allowed to save per month and how little of a government bonus you will receive after saving. The average mortgage deposit needed for a UK property in the UK is certainly way higher than £15,000.
If you had to save £200 a month it will take you more than 75 months to save £15,000.
Alternatives to the help to buy ISA
There are other government schemes which may be able to help you get on the property ladder aside from the help to buy ISA. They are listed below.
- Lifetime ISA– gives you a government bonus of £1,000 if you save the maximum £4,000 a year.
- Help to buy equity loan- gives you up to 40% as a 5-year interest-free equity loan. You begin to pay interest at 1.75 % after the fifth year and 1% plus RPI for every year thereafter.
- Shared ownership– You can buy between 25% to 75% of the property initially with a shared ownership mortgage and then buy more using a staircasing mortgage.
- Armed forces help to buy– similar to the help to buy equity loan but specific for the armed forces personnel giving them an increased chance of acceptance.
- Rent to buy– This is the right to buy scheme on which this guide is currently discussing. A different marketing name is just used. Watch out for this when shopping to avoid missing out on eligible properties due to confusion.
- Right to buy– allows you to buy your home at a discount price.
- Preserved right to buy– same as above.
- Right to acquire- same as above.
In this brief guide, we discussed the Help to Buy ISA scandal. If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.