A helping hand to buy, but watch your step – Gareth Shaw

There are pitfalls for the unwary in government’s scheme allowing first-timers to get on housing ladder, says Which?’s Gareth Shaw in answer to a reader’s question

More than a quarter of a million people have been able to purchase their own home thanks to the governments Help to Buy bonus scheme. Picture: Getty
More than a quarter of a million people have been able to purchase their own home thanks to the governments Help to Buy bonus scheme. Picture: Getty

Q I was wondering if you could shed light on this situation. I live with my partner, I own our ­current property but we are selling up, moving out for a year and then buying a property together.

My partner seems to believe that she’ll get a £3,000 bonus if she saves up £12,000 into a Help to Buy Isa, but that I can’t open one as I already own a property – and that she’ll get her 25 per cent government bonus when we buy together.

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Is this the case? It would be helpful to know before she spends the next year saving into it for us to ­discover that’s not how it works.

A More than 230,000 properties are now owned by first-time buyers thanks to the Help to Buy Isa, according to government stats ­published just last month.

Around £285 million of bonuses have been provided to prospective buyers in the three and a half years, helping them to purchases properties worth a collective £40 billion.

On the face of it, it looks like a huge success, helping almost a quarter of a million people buy their first home, but I think the government expected it to be much bigger.

I went back to the documents published in the March 2015 Budget, and saw that in the 2018/19 tax year, it was expecting to pay out bonuses of £640 million. In fact, it only paid out bonuses of £128 million last year – 20 per cent of that an estimate.

That’s not to take away from its utility – if you’re a first-time buyer looking to save up a deposit, why would you turn down a free top-up from the government, as well as enjoy better savings rates than the normal cash Isa market can offer?

You’re absolutely right that you can save a maximum of £12,000 into a Help to Buy Isa and, in return, get a total £3,000 in bonuses. You’re restricted, however, to paying in £200 per month, topped up with a £50 bonus from the ­government. You can boost your savings with an extra £1,000 in your first month.

So, who is eligible for a Help to Buy Isa? You have to be a genuine first-time buyer, using the money you’ve saved up to buy your first home. This property can cost a maximum of £250,000, or £450,000 if you live in London.

You have to get a mortgage (so you can’t get the bonuses if you’re buying the property outright in cash) but, crucially, you don’t have to take out a loan with the provider of the Isa you’ve opened. The good news, Craig, is that your partner is right. You cannot open a Help to Buy Isa because you’re an existing homeowner, but that doesn’t prevent her from using this savings scheme and buying with you in the future. She can continue to save into the Isa and receive the bonus, and you will have to fund your own part of the deposit.

Let’s talk about the bonus, though, because the way it works has tripped many ­people up in the past.

When your partner makes her monthly savings, the government isn’t adding a top-up straight into her Isa account. The bonuses only become payable on completion of the property. She will tell the bank she’s ready to buy and close her Isa account, and be given a closing letter. When this is handed to your conveyancer or property solicitor, they will apply for the bonuses, which will be used to complete the purchase of your property with both of your cash deposits and the bonuses.

The thing to remember here is that your bonuses are only paid right at the end of the transaction. When you exchange contracts with the seller, meaning you’re legally committing to buy the property, you’ll be asked to pay an exchange deposit, usually 10 per cent of the value of the property. You cannot use your bonus towards this. It’s really important to factor this. If, for example, you were looking to borrow 90 per cent of the property’s value, using a 10 per cent deposit made up of your savings and the bonuses, tell your property solicitor as early as possible. They will be able to negotiate a lower exchange deposit with the sellers.

Help to Buy Isas are closing to new savers in November this year. But if you have already opened one, you have until 1 December 2030 to claim your bonuses.

You can find out more about the rules by visiting which.co.uk/helptobuyisa.

Gareth Shaw is head of money at Which?