For several years first time buyers have been able to place savings for a house into a Help to Buy ISA and have the benefit of a 25% bonus from the Government. When the time comes to purchase the property many purchasers then have questions on what they need to do in order to receive this bonus.
Eligibility
In order to be eligible to receive the Help To Buy ISA bonus you must meet the following criteria:
The property you are buying must be for use as a sole main residence.
You are not eligible if you have previously had any interest in property, anywhere in the world
The property must be in the UK
The purchase price of the property cannot exceed £250,000.00 (£450,000.00 in London)
The purchase must be made with funding by way of a residential mortgage
You must have a minimum of £1,600.00 saved in your ISA account in order to be eligible for the minimum bonus amount.
How to claim the bonus
Your solicitor will be responsible for claiming the Help to Buy ISA bonus on your behalf. In order to claim the bonus, your solicitor will ask you to provide certain documentation.
You will need to have closed your ISA account and when you do so your bank will issue a Closing Letter. You will need to provide this to your solicitor however you should be aware that it can take up to 7 working days for this to be issued. Different banks will work on different timescales but you should allow for the full 7 days in accordance with the government guidance.
In the event that the Closing Statement is not available in time you can use an Interim Statement. If you are using the Interim Statement rather than a closing statement you will need to tell your solicitor the exact amount that you had in the ISA account when you withdrew the funds and closed the account. You will also need to tell your solicitor the date on which the account was closed.
In addition to the Closing Letter you will also need to complete a First Time Buyer Declaration. By signing this declaration you will be confirming that you are eligible to claim the ISA bonus.
Under the Help to Buy ISA scheme rules your solicitor is able to charge an additional £50.00 plus VAT for the work involved in dealing with the ISA.
The ISA scheme guidance states that it will take up to 5 working days for bonus requests to be processed and funds to be available for release. When discussing completion dates with your solicitor you should take into consideration both the 5 days for the bonus request to be processed and the time taken for the Closing Statement to be issued.
Using the bonus funds
The ISA scheme rules state that the bonus funds must be used for the completion funds being sent to the seller’s solicitor. The key distinction to be aware of is the difference between the mortgage deposit and the exchange deposit.
The mortgage deposit is the total amount required on top of the mortgage funds.
Example 1
Purchase price of the property £100,000.00
Mortgage deposit £ 10,000.00
Mortgage funds £ 90,000.00
Help to Buy ISA savings £ 3,200.00
ISA Bonus £ 800.00
The breakdown of the mortgage deposit would be:
Help to Buy ISA savings: £3,200.00
ISA Bonus: £ 800.00
Other savings: £6,000.00
The exchange deposit is the funds that are put in place at the point of exchange of contracts. Usually the deposit will be 10% of the purchase price, so on a property costing £100,000.00 the exchange deposit would be £10,000.00. However where part of the funds for the purchase is received from the Help to Buy ISA bonus you will need to exchange with a lower exchange deposit.
Example 2
Purchase price of the property £100,000.00
Exchange deposit £ 9,200.00
The balance then due on completion would be £90,800.00 which would be made up of:
Mortgage funds: £90,000.00
Help to Buy ISA bonus £ 800.00
The contents of this post do not constitute legal advice and are provided for general information purposes only ■
