Purpose of HTB ISA Bonus?

Benr83

Hi,

Can someone please explain the purpose of the HTB ISA to me? Both me and my wife have one and I thought the purpose was to use this and the bonus you receive towards the deposit.

But from what I've read this evening this is not the purpose of the ISA. From the information I've read, the savings and bonus are used towards the purchase of a house but is not for the deposit?!? This is the bit that confuses me.

We are in the process of buying a new build property and will be exchanging contracts (along with the deposit) soon. But from what I've read tonight, I can't use the bonus towards the deposit. Is that correct?

If so, what is the bonus for exactly? If I've got an agreed mortgage for x% of the property and I'm paying y% deposit for it, how does the bonus tie into this?

Any explanation is very much appreciated!!

Thanks

Ben

eskbanker

The bonus is to contribute to the purchase cost at the time of completion, not when exchanging contracts. The ambiguous term 'deposit' is used by some to mean the advance reservation fee on a new build but by others to mean the equity difference between property value and mortgage that needs to be paid at completion. The HTB ISA bonus can only be used towards the latter, not the former.

Rich2808

Your solicitor or conveyancer - make sure you appoint someone registered for the scheme - claims the bonus and pays it to your mortgage lender. The solicitor can charge £50 plus VAT and no more to do this - but it's up to them if they are willing to make the effort.

So the funds are never paid to the first time buyer directly - but are paid to the bank or BS you have your mortgage with - to reduce your mortgage. Your solicitor claims it from the government and pays it to the mortgage lender. It's a very grey area though as to how your mortgage provider uses this - a deposit, offsetting month 1s payment or reducing the mortgage. But you should assume it's the latter and the bonus cannot be used for the deposit.

It really should be called a help to borrow isa - if you buy without a mortgage even if you meet all the other criteria you are ineligible for the bonus.

But then like most of these first buyer schemes they are intended to help banks and developers.

If you are on minimum wage and buy a flat for £20k in cash in Stoke using an inheritance from your gran you are ineligible. If you earn £100k and have a £400k deposit and take out a £50k mortgage to buy a £450k flat in Central London you do get the bonus. Think on that one - who really needs taxpayers help?!

eskbanker

Rich2808 wrote: »

Your solicitor or conveyancer - make sure you appoint someone registered for the scheme - claims the bonus and pays it to your mortgage lender.

[...]

Your solicitor claims it from the government and pays it to the mortgage lender. It's a very grey area though as to how your mortgage provider uses this - a deposit, offsetting month 1s payment or reducing the mortgage. But you should assume it's the latter and the bonus cannot be used for the deposit.

Where do you get this from? I haven't been through the process myself but there is no mention of the bonus being paid to the mortgage lender in the scheme rules or the conveyancer guidelines, just that the bonus is paid from the ISA administrator into the conveyancer's client account for consolidating into the amount paid to the seller (i.e. along with the funds supplied from the mortgage lender and other funding from the buyer).

I could be wrong, but if you have any evidence to back up your view that the bonus goes to the mortgage lender then could you post a link please?

amr547

My letter from solicitor states that it will be paid "towards the purchase price of the property" so I assume it is as rich stated.

TrustyOven

I also get confused by this.
If the lender wont give you a mortgage unless you have 10% deposit, does the HTB ISA gov bonus get considered as part of that deposit, or is it actually not a deposit at all, and it just goes in as a lump sum to pay off a chunk of the mortgage, once you are able to get one from the bank after getting an acceptable sized deposit?

Rich2808

Sorry - my mistake in terms of the bonus payment. Its claimed by your solicitor - assuming you employ someone approved and accreditated and they are willing to do the work for £50 - and it does appear it is paid to fund the final purchase paid to the seller's solicitor and not your lender.

But this illustrates perhaps that its all a bit confusing. - I expect people assume the bonus will be paid to them directly but its not. So it in effect means either you need a lower mortgage or a lower deposit - albeit I presume lenders won't assume the bonus as a contribution to your deposit.

I think the scheme is confusing and cack handed - imagine saving the full £12k and then it turns out your solicitor isn't eligible for the scheme and you cannot claim the bonus. Why not let your mortgage lender claim it for you, pay it into your mortgage account - and offset that against your first few mortgage payments - they have much more of an incentive to help you as they will presumably want your custom for 25 years and have the capacity to operate it effectively.

Why even involve solicitors - £50 is what many of them charge for the time it takes to boil a kettle!

eskbanker

Rich2808 wrote: »

But this illustrates perhaps that its all a bit confusing. - I expect people assume the bonus will be paid to them directly but its not.

They wouldn't assume this if they read the scheme rules, or even the MSE summary article! However, given that it needs to be used towards the purchase of the property, there's no material difference anyway, since any such purchase needs to be transacted through a conveyancer of some sort, who will gather up the required funds from the various sources.

Rich2808 wrote: »

So it in effect means either you need a lower mortgage or a lower deposit - albeit I presume lenders won't assume the bonus as a contribution to your deposit.

Why would they assume that? It's money that the buyer has available to them to contribute to the purchase by increasing (not lowering) the deposit and therefore lowering the mortgage, which I think most first-time buyers would agree is a good thing!

mooluk26

eskbanker wrote: »

Why would they assume that? It's money that the buyer has available to them to contribute to the purchase by increasing (not lowering) the deposit and therefore lowering the mortgage, which I think most first-time buyers would agree is a good thing!

The issue is that on a new build property, the deposit is agreed and paid at exchange of contracts (as in the big 5+% chunk of cash up front, including the earlier plot reservation). At completion, the only remaining funds required are those of the mortgage. The housebuilder requires £X, the bank provides £X, then when you turn up with your £Y bonus, where does it go? Your housebuilder can't have it because then you've overpaid. The mortgage provider has already agreed to give you the full £X, and it's way too complicated to now reduce the amount you borrow. So that leaves the option that it is an overpayment of your mortgage, but there is no clarification of this.

eskbanker

That scenario may be relevant where the 5% (or whatever) deposit paid at exchange time happens to equate exactly to the total equity that the buyer is contributing to the purchase, but I don't believe that to be a particularly representative example. Even if it was, it shouldn't be rocket science to factor some additional available cash into negotiations with mortgage lenders, either in advance or when actually kicking off the mortgage....

Marblehead_2

Just to throw in a comment from someone who went through the process, I agree with eskbanker.

I bought a new build in March, had to pay a small deposit on exchange, then a big chunk on completion - the HTB ISA bonus reduced the big chunk bit. So, for example, instead of saying to the seller/lender that I would complete with £100,000 mortgage and £100,000 cash, I said I would complete with £100,000 mortgage, £99,600 cash and £400 HTB bonus. Everyone I know who has bought has paid additional money aside from the mortgage at the completion stage (via their solicitor), so the bonus just forms part of that. You never actually see the money, but it is part of what you pay just before you get the keys.