There is a great deal
of buzz surrounding the Government backed Help to Buy ISA Scheme ( available
since the 1st December 2015) and
in this article I look to explore the 'ins and outs' of the scheme as well as assessing whether it is likely to be successful.
How does it work?
You open an ISA account and the Government will top up your
savings by 25% according to how much you add to the account.
You can add in the first month £1200 but there after you can
only add a maximum of £200 per month.
You will only be entitled to the Government bonus once you have
accumulated £1600.
The maximum amount you can save in a Help to Buy ISA is
£12,000.
So the minimum Government bonus is £400 ( once you have
reached the minimum amount ) and £3,000 if you accumulate the full 12,000 (
which will take around four and half years).
Help to Buy ISAs are available to each first-time buyer, not
each house, so if you’re buying a property with your partner, for example,
you’ll be able to get up to £6,000 towards your deposit.
Your Government bonus will go straight to the mortgage
lender. It doesn’t sit in your account, it earns no interest, and you only get
it if you buy a home. If you don’t decide to buy a home nothing apart from the
bonus is lost since you can still subject to notice requirements of the supplier
of the ISA, withdraw the savings.
Who qualifies ?
You need to be a first-time buyer and must be aged 16 or
over.
It can be used to buy any home worth under £250,000 (or
under £450,000 in London). It will not be available to those who wish to buy a
property to let or an overseas property.
You can use a Help to Buy ISA with any mortgage.
The scheme is limited to one Help to Buy ISA and you can’t
open a Help to Buy ISA and a normal Cash ISA in the same tax year.
The ISA will only be available to open until 30th
November, 2019 but if f you opened your Help to Buy ISA before then you can
keep saving into your account. You must claim your bonus by 1 December 2030.
Does the Help to Buyer ISA represent
a good deal?
According to The Money Advice Scheme it is:
‘…………..a
no-brainer if you’re a first-time buyer saving for a mortgage deposit. You can
earn up to 4% interest tax-free and then the state will add 25% free cash, and
it could be £1,000s, on top of what you save’
So what are the drawbacks?
In truth there are not many.
If you are looking to purchase now or within the immediate
future before house prices begin to accelerate further Help to Buy ISA is not really going to make a big difference.
If you were to start an account now and run with the £1200 initial deposit you
could be eligible for the tax free bonus of £400 within 3 months of opening the
account.
The bonus cannot be used to pay other costs, such as legal
fees. It can only be used towards the purchase price.
You may find it difficult to find a conveyancer who is
prepared to handle the conveyancing of a property which is funded in part by
your ISA savings and the government bonus.
This is because the government as you will see below has limited the fee
a conveyancer can charge for the extra work to £50 plus VAT. Some conveyancers may take the view that the
fee is unlikely to cover the actual work involved and decide not to take this
work on.
What is the role of the conveyancer?
The solicitor or conveyancer will make the application for
the bonus on behalf of the client, confirm that the client has declared their
eligibility to receive the bonus and confirm that the property being purchased
meets the eligibility criteria. This involves submitting the relevant
documentation, including a payment request, and, once received, applying the
bonus funds towards the purchase of the property.
Solicitors and conveyancers may charge the client up to £50
plus VAT to fulfil their role as part of the scheme.
To be able to act for clients the conveyancer must register
with the Scheme. This involves an
application and vetting process which is to be handled by a third party –
Lender Exchange.
Once registered the conveyancer for his or her £50 will be
required to do the following.
Firstly to make the bonus application on behalf of the client,
and confirm that the client has declared
their eligibility and the property being purchased meets the eligibility
criteria.
This involves sending an application for the bonus to the
Administrator, submitting the relevant documentation to the Administrator,
submitting a payment request following approval, and holding the bonus to apply
to the purchase of the property.
The conveyancer is also required to verify that the client
is acquiring an eligible interest in land, that the acquisition is funded by a
non-buy-to-let mortgage (unless exceptions apply) and that the value of the
property is up to £250,000 or £450,000 depending on the location of that
property.
If the conveyancer has reason to believe that the client is not eligible for a bonus, he or she should
not proceed with the bonus application.
It is said the process will be simple and straightforward. Only
time will tell.
Some questions
A cash free bonus can only, on the surface, represent a good
deal for a first time buyer,though limiting the amount of the monthly
contribution and delaying for four and half years the opportunity to purchase a
property with the full bonus, must beg the question whether the benefit of the bonus will be lost given the current
rate of house inflation.
On the same note and given the figures are not house price index
linked how many properties with a property tag of £250,000 and less will be
available in four and half years’ time?
Applying an arbitrary cap to the extra-legal fee a
conveyancer can charge, without any apparent engagement with the industry and regard
to the amount of extra work involved, is unlikely to win favours and could lead
to clients finding it difficult to find a conveyancer willing to assist with a
purchase.
Conclusion
This may appeal in main to parents who are keen to find a
tax free vehicle for assisting their children with their savings to be used towards the purchase of a
property in the future.
I question however whether it will have wider appeal and indeed
value unless the bonus is linked to the House
Price Index and the Government does something soon about making more affordable
homes available for first time buyers.
As for what can only be described as a token payment to the
conveyancer, it is clear once again the conveyancer has been chosen as
easy prey to subside the administration of the scheme, especially when you consider
how much £50 plus VAT will be ‘worth’ in
2019/20 when, if successful, the system will kick in.
At present this represents nothing other than a political murmur
falling well short of what is actually required to provide real help to the
first time buyer.
MJP Conveyancing are solicitors who provide legal advice and services to clients based in England and Wales and who can be contacted on 01603877067 or via email at david@mjpconveyancing.com
