Help-To-Buy Clause For First-Time Buyers Under Scrutiny

30 August 2016

Another report has come to light with regard to Help-To-Buy, as the Guardian reports. In an article published recently, it has been noted that a clause in the government’s Help-To-Buy Isa scheme has come under fire as first-time buyers will have a harder time to purchase a home and get on the property ladder.

The scheme was first introduced by the former Chancellor George Osborne last year, in which he promised that there would be direct government support to those who were saving towards a deposit in order to purchase their first home.

The government pays a 25% ”bonus” of up to £3,000 towards their first deposit, however, there has been an issue with some buyers not being aware that this is not paid until a property sale is completed. This means that buyers will not be able to count the funds towards their first deposit required by mortgage lenders. Opponents of the scheme, largely from the political parties such as Labour, have heavily scrutinised the scheme from the time it was first introduced, and with the problem of this clause coming to light, prominent party members have voiced their opinions.

In the article, Labour leadership candidate Owen Smith stated that this clause was another ”Tory con” and that this scheme doesn’t actually help first time buyers at all. David Lammy, Labour MP for a North London borough also claimed he was ”absolutely outraged on behalf of…all those price out of ever owning their own home.”

The treasury, however, have countered that by highlighting that the scheme has in fact helped many first-time buyers, with more than 500,000 being helped to save for their first home, and thousands of bonuses already being paid out already.”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 towards the total funds available for the property transaction,” a spokesman said. He went on to say: ”The government has published clear guidance and the industry is fully aware that the bonus is only paid on completion.” A mortgage broker, Ray Boulger, has stated that a few purchases did not proceed between the exchange of contracts and completion, hence why the scheme pays out the bonus only when the sale is finalised. But it appears that some buyers were unaware of this clause.

A financial planning director of Hargreaves Lansdown, Danny Cox, mentions in the article that ISA providers should clarify this clause so that buyers know what to expect when they enter the help-to-buy scheme and inform them that the bonus will not be available at exchange. The help-to-buy ISA allows potential buyers to save up to £200 a month on top of an initial £1,000 deposit. The 25% bonus can only be used to buy a property in the UK that costs up to £250,000, or £450,000 in London.