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May 2, 2019
If you’re relying on a Help to Buy ISA to help you save for your purchase, then beware. Around 55,000 buyers using Help to Buy ISAs didn’t realise the bonus paid by the Government on their savings can’t be used for their deposit, says new research.
A Freedom of Information request by OneFamily Building Society found a staggering number of first-time buyers had been caught out. And as a result, 51% of those affected had to borrow from friends and family to make up the average short-fall of £1,400, reports the Daily Mail.
With Help to Buy ISAs, you can make a lump sum deposit of £1,000 when you open an account. You can then save a maximum of £200 per month afterwards. Your savings are boosted by a 25% bonus from the government when you purchase your first home.
However, the bonus can’t go towards your deposit because you won’t get it until after contracts are exchanged.
If you’re thinking about using an ISA to save for your first home, read our guide on the difference between a Help to Buy ISA and a Lifetime ISA
Despite this snag with Help to Buy ISAs, the Help to Buy equity loan scheme is more popular than ever. It has been reported this week that more than 52,000 homes were bought through the Help to Buy: Equity Loan scheme in England last year. This equates to around 1,000 per week, according to new figures.
This was an increase of 12% compared to 2017, Government data reveals. It also shows more than 210,000 homes have been bought under the scheme since it was launched in 2013.
Help to Buy now makes up around 5% of all types of homes sold in England and account for nearly a third of all new-build homes that are bought.
The government’s Help to Buy equity loan is available for people who want to buy a new build property – and it’s interest-free for the first five years.
You’re eligible if you’re a potential or existing homeowner, providing the property you plan to buy is a new-build. Your new home will also need to be valued under the set price cap (currently £600,000) and you’ll need at least 5% saved for a deposit.
With Help to Buy loans, you can borrow up to 20% of the property’s value. This means including your 5% deposit, you take out a mortgage for the remaining 75%. In London, the rules are different and you can borrow more.
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