Help to Buy ISA query

G_M

The problem you have is that the word 'deposit' is used for 2 completely different things.

1) payment
A buyer pays for the property in 2 installments. Installment 1 is paid at Exchange of contracts and is by default 10% of the purchase price. The other payment is at Completion (when ownership transfers) and is the other 90%
This is the same however you are paying. Even if there is nomortgage at all and the buyer is using their own cash, the 2 installments take place.

Sometimes the seller will agree to accept a lower deposit at Exchange, but that has to be negotiated/agreed.

2)Mortgage
The (mortgage) deposit is basically the balance that the borrower is not borrowing. If the buyer is borrowing 50% of the purchase price on a mortgage, then the 'deposit' is the other 50%. In your case you are borrowing 95%, so your 'deposit' is 5%. 'Deposit' is really a misleading name for this - 'equity', 'cash' or something similar would be less confusing, but sadly the mortgage industry uses the word 'deposit'.

PrettyFlower90

So if I get this right, we only have 5% of our house price in cash at the moment, we do not have 10%. So we have to ask sellers before we put in an offer if they will only take 5%? As if it's normally 10% and seller won't take less, we won't be able to buy let along offer.

bambamboo

G_M wrote: »

The problem you have is that the word 'deposit' is used for 2 completely different things.

1) payment
A buyer pays for the property in 2 installments. Installment 1 is paid at Exchange of contracts and is by default 10% of the purchase price. The other payment is at Completion (when ownership transfers) and is the other 90%
This is the same however you are paying. Even if there is nomortgage at all and the buyer is using their own cash, the 2 installments take place.

Sometimes the seller will agree to accept a lower deposit at Exchange, but that has to be negotiated/agreed.

2)Mortgage
The (mortgage) deposit is basically the balance that the borrower is not borrowing. If the buyer is borrowing 50% of the purchase price on a mortgage, then the 'deposit' is the other 50%. In your case you are borrowing 95%, so your 'deposit' is 5%. 'Deposit' is really a misleading name for this - 'equity', 'cash' or something similar would be less confusing, but sadly the mortgage industry uses the word 'deposit'.

Thank you, re point 2, how do we pay the 5% if we've already paid that at stage 1?

Our solicitor does know our position, should he have passed on the info about the 95% deposit when making the offer? I'll confirm tomorrow though.

This is what I thought would happen:

We give the £8k we have as the deposit at the exchange point using our ISA money (£6k) and savings.

Then on completion the mortgage company release the £150k and our solicitors request the ISA bonus which will go towards the total outstanding balance (£150k + fees). And if there's any balance after that we pay the difference out of our 'fees pot'.

Is that all completely wrong?

bambamboo

Why can't I edit posts? I meant 95% mortgage not deposit

G_M

bambamboo wrote: »

Thank you, re point 2, how do we pay the 5% if we've already paid that at stage 1?
At Exchange you pay 10% (unless the seller agrees a lower amount). This will have to be from your own resources as the bank will not release the mortgage till Completion.

So at Completion you still owe 90%. Since you are borrowing 95% you will receive some extra cash from the bank which can be used for whatever you want eg
* to pay SDLT
* to pay legal fees
* to repay a loan (if you had to take a loan to pay the 10% at Excange)
* for a slap-up dinner at Mrs Higgins'

Our solicitor does know our position, should he have passed on the info about the 95% deposit when making the offer? I'll confirm tomorrow though.
ask him to ask the seller's solicitor if they will accept a 5% deposit at Exchange instead of 10%.

This is what I thought would happen:

We give the £8k we have as the deposit at the exchange point using our ISA money (£6k) and savings.
the ISA money will not be released to you till later

Then on completion the mortgage company release the £150k correct and our solicitors request the ISA bonus correct which will go towards the total outstanding balance (£150k + fees). And if there's any balance after that we pay the difference out of our 'fees pot'.

Is that all completely wrong?

I suggest you go in to your solicitor's office tomorrow. Sit down with him and ask for an explanation, and explain what your funds are and where they come from.

bambamboo

Why won't the ISA money be released until later? I'm going to have to do as you suggest and speak to the solicitor as I am none the wiser about this, I don't understand why the bank would give us more money to use on what we please? What's the point in that? Why can't we have our £6k for the exchange? It's our main source for deposit. We don't have any way to get a loan?

Feel like crying. I'm generally not a stupid person, but this makes me feel like I'm a dumb idiot.

bambamboo

According to the HTB website I can use the money at exchange

Can I use the money I have saved in my Help to Buy: ISA for the deposit at exchange of contracts for my home purchase?
Yes. If you plan to use the money you have in your Help to Buy: ISA to pay for the deposit at exchange of contacts you will need to let your ISA provider know. Your ISA manager will then close your account and provide you with a closing statement. You can then withdraw your savings from your account and use those savings towards the deposit at exchange. It is important that you don’t just withdraw your savings without getting a closing statement. The government bonus will be paid out just prior to completion and contribute to the overall deposit.

- See more at: https://www.helptobuy.gov.uk/help-to-buy-isa/faq/#4d9a24ea-e1f7-648f-8ce9-ff0000ad17aa

kingstreet

Using the ISA investment and interest has never been in question.

The only item you won't have for exchange of contracts is the ISA bonus.

Your solicitor or your mortgage broker should be able to explain things to you in a manner you can understand.

On the separate matter of the amount of deposit required, 10% is the norm; but for those getting 95% mortgages your solicitor will agree the smaller deposit with the vendor's solicitor and all parties will know about this because the selling agent will put it on the Memorandum of Sale when the price is agreed between vendor and purchaser and the sale is agreed.

bambamboo

kingstreet wrote: »

Using the ISA investment and interest has never been in question.

The only item you won't have for exchange of contracts is the ISA bonus.

Your solicitor or your mortgage broker should be able to explain things to you in a manner you can understand.

On the separate matter of the amount of deposit required, 10% is the norm; but for those getting 95% mortgages your solicitor will agree the smaller deposit with the vendor's solicitor and all parties will know about this because the selling agent will put it on the Memorandum of Sale when the price is agreed between vendor and purchaser and the sale is agreed.

But G_M stated when I talk about the £6k in our ISAs that this won't be released to us until later - so while I know that the government bonus isn't given until later (which is completely fine), I was questioning why the £6k wouldn't be available until later (according to what G_M wrote).

stardust09

I had been really confused by this too so I'm pleased to read this post.

I want to maximise the bonus by contributing to my HTB ISA up to the last minute. Does anyone know how long it takes to close the ISA in branch (I'm with Halifax) and get the statement that the solicitor needs? I wasn't sure if you could just go into the branch and they do it there and then and give you the statement you need or if it takes time.

I understand that the solicitor needs to allow 5 days between exchange and completion to claim the bonus, if that's correct. I'm just plotting my timescales!