This week the news has been overflowing with articles that refer to the Help to Buy ISA scheme as a misleading scam that has let first-time buyers down. This has stemmed from the general realisation that the Help to Buy ISA scheme, which allows individuals to receive up to a £3,000 bonus, cannot be used towards the deposit, when buying a first time home.
The mechanics for the Help to Buy ISA have remained the same since it's launch last year on 1 December 2015, yet due to incorrect marketing from certain banking providers, this has mislead people into believing that the bonus sum paid by the Government can be used towards the deposit of a first home. This was never the case. The Government website made it quite clear that the bonus that they pay out is not to be used towards the deposit. Neither is the Help to Buy bonus to be used towards any associated costs of the purchase such as solicitor's fees or agents fees, often referred to as disbursements (this just means third party costs that are incurred in the transaction). Full details of the restrictions and conditions of the Help to Buy ISA can be found on the Government website (https://www.helptobuy.gov.uk/help-to-buy-isa/how-does-it-work/).
To help understand the mechanics of the scheme it is quite crucial to distinguish between two key moments in a property transaction; exchange and completion. Exchange is where the contracts to the transaction are exchanged, meaning that the buyer and seller are legally bound by contract. It is at this stage that a deposit is usually required, and failure to complete on this transaction could, and often does, mean that such a deposit is forfeited. By exchanging contracts both parties are showing that they intend to create a legal relationship, and they intend to continue forward to completion.
Then there is completion, when the funds from the buyer, or in many cases the mortgage provider, will be released to the seller along with any other conditions, and completion will take place. An example of regular practice is that also the keys will be released to the new owner, this being the last piece of the puzzle to come together.
There can be instances where there will be a simultaneous exchange and completion, but for ease it is important to think of the two as separate, and often with residential properties that may be in a long chain, exchange and completion will be on two separate days. In the case of using Help to Buy ISA Scheme the government requires 5 business days in between exchange and completion to enable the solicitor to have the bonus payment in time for completion.
So whilst it is true, that the Help to Buy scheme cannot be used for saving towards the deposit, the bonus from the Government can still be used towards the purchase price of the property. This means that first time buyers will still have to save the deposit with their own money, which will be due on exchange, but the Help to Buy bonus can then be requested and be used at completion towards the overall property purchase price. Provided that the requirements of the Help to Buy ISA have been observed by the individual(s) then 4 weeks prior to exchange the Help to Buy ISA will need to be closed and the individual will be sent a closing statement of which they will need to send to their solicitor prior to exchange. Once exchange takes place the solicitor will then submit the closing statement along with the declaration and request the bonus in time for completion. As the Help to Buy scheme is intended for first time buyers only, it is crucial that in order to police this the Government are satisfied that the bonus they pay out is to be used only towards a first time home. In order to safe-guard the bonus from therefore being used to fund other things, the Government do not pay the bonus until completion. The reason for this is to ensure that the first time buyers are intending to go through with the house purchase, that the new home can be identified, and that this is the sole purpose of where the funds are to be used. Individuals that request a bonus from the Government are also asked to sign a statutory declaration that confirms that the money they receive will be used towards their first home. Again, this is all a safe-guarding measure, and whilst many may be disappointed to learn that the bonus is not payable towards the deposit of a first time home, the bonus can still be obtained and used towards helping the overall purchase price.
For more information on the Help to Buy Scheme, please see our dedicated webpage by following this link.
Clapham & Collinge can assist you, your friends or family with all of your conveyancing needs and can obtain your Help to Buy ISA bonus from the Government prior to completion on your behalf. Contact us today on 01603 693500 or email us using the 'make an enquiry' form. Appointments available at our Norwich, Brooke, North Walsham and Sheringham offices.