Mortage & Reservation/Holding deposit advice

jbondo

Hi,

We are 2 First Time Buyers with a Help to Buy ISA & are relying on the ISA & Government bonus for the mortgage deposit.

We are still very new to the process & have done some research so please bare with me on this!

After reading the MSE article on the HTB ISA, it states there are 2 deposits: A mortgage deposit (which we are aware of) & a reservation/holding/exchange deposit (Which we were not that aware of).

After reading the MSE article, my interpretation was that we can use the HTB ISA & Bonus for the Mortgage deposit however not for a reservation/holding/exchange. deposit which may be a problem.

As we are relying on the HTB ISA & Bonus for the Mortgage deposit, could this be a issue for us in regards to the reservation / holding /exchange deposit? Reading the MSE article, it reads that as long as we are upfront about the HTB ISA & bonus with all parties this generally should not be a issue as they will get their money a few days later anyway.

I have asked this question to a mortgage broker we have spoken to previously & they have said:

This is not correct, you only have to pay one deposit and that is the deposit which we discussed [mortgage deposit]

....but no I can assure you that there is only one deposit to pay

I've asked the same question to a conveyancing company who has said:

A mortgage deposit is the difference between the property value and what you're being lent. This is essentially the same as the 10% deposit you need to pay on exchange [mortgage deposit, got it!]

You will face an issue here as you can only use the savings within the ISA towards the deposit. You can not use the ISA's government bonus towards your deposit.

The bonus cannot be used for the deposit due at the exchange of contracts, to pay for solicitors, estate agent fees or any other indirect costs associated with buying a home [I know Fee's etc we would need to pay our self, no problem there]

The bonus within the ISA can be used towards the competition of the property, for example what you can do is reduce the mortgage amount by the bonus amount so you have a smaller mortgage on the property however you will need to find the money to make up the deposit.

To me, this seems to contradict each other so if I could have some clarification & previous experience that would be great. Thanks in advance & apologies if this post is a bit confusing!

eddddy

It would be easier to explain with some real numbers.

So lets assume that you are buying a property for £100k

- with a 90% mortgage (i.e. £90k)
- and you have £8k in your ISA
- and you expect a £2k bonus from the government


Normally, you have to pay a 10% deposit on exchange of contracts (so £10k), and the remaining £90k on completion.

But you only have £8k in your ISA, and the £2k bonus cannot be released on exchange of contracts - only on completion.

Also, none of the mortgage can be released on exchange of contracts - only on completion.

So if you don't have a spare £2k, you'll have to ask the seller if they will accept an £8k deposit (i.e. 8%) on exchange of contracts, with £92k on completion.

(Plus there are legal fees, mortgage arrangement fees, etc.)

jbondo

Hi Eddddy,


Thanks for that - So essentially the broker is correct in saying there is only 1 deposit to pay?


As long as we are upfront with the seller stating we are relying on the HTB ISA & Bonus then hopefully there should be no problem because in this example, we can give them the 8k deposit & a few days later at completion give them the outstanding 92k (90k mortgage + 2k bonus).

eddddy

jkility wrote: »

Thanks for that - So essentially the broker is correct in saying there is only 1 deposit to pay?

Yes - with the example numbers I used. And perhaps with your numbers as well.

But if you were buying a £100k property with an 85% mortgage...

- normally you would pay 10% (£10k) cash on exchange
- another 5% (£5k) on completion - plus £85k mortgage

So you'd have to pay two lumps of cash.

jkility wrote: »

As long as we are upfront with the seller stating we are relying on the HTB ISA & Bonus then hopefully there should be no problem because in this example, we can give them the 8k deposit & a few days later at completion give them the outstanding 92k (90k mortgage + 2k bonus).

Yep.

But... there are some 'technical' reasons why a seller might not like it.

- If you pay your deposit, exchange contracts... and then 'do a runner' - the seller only gets £8k in compensation, instead of £10k.

- The seller may be buying another house, and needs your full £10k deposit to use as a deposit for the house they're buying.

jbondo

eddddy wrote: »

- The seller may be buying another house, and needs your full £10k deposit to use as a deposit for the house they're buying.

I suppose this may depend if their is a chain or not? If no chain then I'm assuming this should not be a big issue however if there is a chain then could become a issue.



Not sure the best way to put this but would a few days matter between 1 amount of money & another? As at the end of the day they will get the full money just not at once. I can understand both sides of the situation but if this was the case and the other party did have a chain they could say the same to the property their buying "Just waiting for the money to come through from my property, only be a few days". But I can totally understand the other parties side too.

kingstreet

The bonus cannot be used for solicitors, estate agent fees or any other indirect costs associated with buying a home.

Although this is what the rules say, practically, the bonus goes into the pool of funds held by the solicitor ahead of completion so in reality it is used for fees and effectively refunds back the part of the deposit paid for exchange off contracts to take place if a smaller deposit isn't accepted by the vendor.