Claiming bonus from isa

Gemskilaru

Hi, hoping someone has the answer because me and my partner are stumped.

Just in the process of buying our first house and have been using the government's help to buy isa. now we've put in an offer at 118,000 with a five percent deposit which has been accepted but we could have put more down (just not enough to get us to ten percent) so the question is for the 'surplus' money, would we still get the full bonus amount and can we spend any of bonus on legal fees?

Gemskilaru

Anybody able to advise please?

Struggling to find an answer anywhere!!

Thanks!

eskbanker

Not sure I fully understand what you're asking but to answer the specifics:

Gemskilaru wrote: »

would we still get the full bonus amount

You receive a bonus of 25% of the total value of your HTB ISA at the time of closing it (at purchase completion).

Gemskilaru wrote: »

can we spend any of bonus on legal fees?

No, the bonus has to be used directly towards the purchase of the property itself.

I'm not sure of the relevance of either question to the scenario where you have more money than you need, so please post again if I've misunderstood!

bowlhead99

The way it would work is:

You are buying a house for £118k and need to put down a deposit of 5% of that which is £5900. Let's say you have £4000 in your HTB ISAs between you which theoretically is a £500 bonus. Firstly, make sure your solicitor is well aware that you are going to want to claim an HTB scheme bonus because that takes time and paperwork for them to do it.

When you exchange the contracts to commit you to buying the house, you need to give the solicitor the £5900 at the time of exchange so he can give it to the seller. You would do this by using up the £4000 of HTB ISA money and £1900 of other savings.

At the time of completion, the seller needs to receive the balance of the money, £118000 less the £5900 already paid. This is £112,100. Usually for someone not using HTB this would be funded by getting a mortgage for £112,100. However, you will be able to claim an HTB bonus of £1000 which your solicitor can get for you at time of completion, so you will be able to use the full bonus of £1000 and a lower mortgage of only £111,100 to cover the 95% balance. So you end up with 111,100 borrowed which is only 94% mortgage instead of the 95% you would have needed without the bonus.

So you are well on your way to having paid the mortgage off because you borrowed less. The solicitor will still want paying for the legal fees and costs and you can do that separately with your other cash savings.


Alternatively, what if you only need 5% exchange deposit £5900 but you already have £6000 saved in HTB ISAs? £6000 is potentially a £1500 bonus, but you can only get the full bonus if you spend every penny of the £6000 towards buying the house, not on other stuff like fees or surveys.

At exchange, you would use £5900 of the £6000 ISA money to pay the 5% exchange deposit to the seller, and have £100 left unused. The fact that you have spent only £5900 on the property means you can only claim a bonus on £5900 which is £1475. The solicitor would claim that for you and you would get £1475 from the government towards the £111,100 that the seller needs, so you would only need a mortgage of £110,625 to make up the difference.

However, if you didn't spend that last £100 in your ISA account on buying the house, you can't claim the last £25 of bonus.

The solution would be that you pay £5900 to the seller at exchange, and then at completion you pay another £100 to the seller, allowing the solicitor to see that you have paid £6000 total from the ISA to the seller and put in a claim for the full £1500 of bonus on the £6000 instead of just £1475 on the £5900. So then you would have paid £6000 to the seller, and got £1500 of bonus to pay to the seller, and the amount you need to borrow on a mortgage is only £118000 less £6000 paid less £1500 claimed which is only £110,500.

You would still need to come up with other money from somewhere else to pay the solicitor their fees and costs.

The bottom line is that if you want to get the maximum amount of free money from the government, every last penny of the HTB ISA balance needs to go into paying the seller. If you have more in the ISA than you 'need' to give the seller as a bare minimum, it is still worth giving the seller all the rest of it at completion so that the full bonus can be claimed, otherwise you waste a bonus of free money that was worth 25% of the unused amount, and you will be borrowing relatively more money if you don't get as much bonus as you can.

If *all* of your money is in the ISA and you don't have any other savings, you are not going to be able to get a bonus on absolutely all of the ISA because some of the money will not be going to the seller it will be going on solicitor fees, and you can only claim the bonus on what goes to the seller, not what goes on solicitor fees. But most people don't have absolutely all of their money in their HTB ISA because the restriction on how much you can put into one each month usually means there is cash floating around in other accounts.

Obviously the attraction of getting as much free money as possible shouldn't outweigh the need to keep some money back for day to day living and emergencies.