Why is it called a Help to Buy ISA when you can't use it towards the deposit?

[TheGreatDiamondo]

So I have just found out that the 25% bonus from a Help to Buy ISA does not actually contribute towards the home exchange deposit, it only contributes to the mortgage deposit at completion.

We had been counting on the fact that the bonus contributed to the 10% (or 20% as it is these days!) deposit. But it doesn't. Which is so stupid because it is literally called a Help To Buy ISA. When in fact it doesn't help you to buy at all.

Instead we should have opened a LISA but we can't now, as we're too old!

Can you explain what you mean by a “home exchange deposit”?

I know “Completion” is when someone buys a house, and most people have a combination of cash (and help to buy ISAs count for that) and a mortgage. So I understand that part.

Reading about, it seems like the government bonus wont get added until after exchange - ie when everyone is committed, and the sale should proceed.

So, a deposit (from the ISA?) Is needed prior to exchange, but the government bonus (and the whole ISA?) isnt available until after exchange. The ISA bonus reduces your LTV, but isnt all (or at all, I'm not clear) available prior to exchange.

I have copied from another website as it's easier to explain!:

When you buy a home there are two types of deposit. And, as the Government decided you'd only get the Help to Buy ISA bonus at completion (so no one could get it if they pulled out of a property sale), it only helps you with one of these types, and it's important to understand the difference.

The home exchange deposit: During the process of buying a property, after your offer is accepted, once you've checked everything out you normally exchange contracts with the seller. At this point the seller will usually ask you to put down a 10% deposit (sometimes it can be negotiated lower to 5%) to secure the property. After that no one else can trump you as you and the vendor are committed to the sale.

You then have time to work through your finances and any other issues towards completion, which is when you and the mortgage company hand over the remainder of the cash (see Buying a Home Timeline for more).

While you can use the money you've saved in a Help to Buy ISA towards this exchange, it's only at completion that you receive the mortgage money and Help to Buy ISA bonus – so the bonus won't help towards the home exchange deposit.

So if you're relying on the Help to Buy ISA bonus to get you to 10% (or indeed only have a 5% deposit in total), it could be a problem.

I've been researching and it turns out SO many other buyers have been caught out by this!

Unbelievable!

OP you can exchange contracts and complete on the same day. That might help your situation.

Yeah we exchanged and completed on the same day using the proceeds of the sale of our flat as the deposit on our house.

It was a bit nerve racking as we had everything packed up and were sat outside our new house waiting for exchange to go through and to get the keys but it was done in the end and we never actually needed to have a cash deposit in hand.

@PinkPlantCase

OP you can exchange contracts and complete on the same day. That might help your situation.

I have heard about this but have learned from following many posts on here over the years that while in theory you can do this, in practice, you really shouldn't as there is so much to go wrong.

We did this in June this year. Our solicitor advised that it was best because of the uncertainty surrounding COVID.

I’d be more nervous if the house was one that went within house of being on the market, because it’s more likely to be snapped up. If a house has been on the market for a month or so then I’d be less worried.

Depends how much you need to extra help to buy money.

We've always exchanged and completed on the same day

Sorry tried to quote and it didn’t work. I mean we completely and exchanged on the same day, earlier this year and had no issues.

Yes lots can go wrong if you exchange and complete on the same day, but generally only when you're in a chain. I presume as you're using help to buy, that you're a first time buyer of a new build.

@PinkPlantCase

OP you can exchange contracts and complete on the same day. That might help your situation.

OP if you are looking to move soon, we bought a property back in July and due to the current climate our solicitor advice was to exchange and complete on the same day. They gave us the impression that this is the norm at the mo.

I'd never give 20% as a home exchange deposit. Max of 10% and I bought a house 2 years ago. I would have thought you would need more than 10% deposit for a mortgage.

Yes lots can go wrong if you exchange and complete on the same day, but generally only when you're in a chain. I presume as you're using help to buy, that you're a first time buyer of a new build.

This. Or are we missing something about using help to buy on older properties?

It says you can use your ISA savings at exchange just not the bonus which is a max of £3000 (pp).

Couldn’t you negotiate to have the deposit at exchange reduced by the bonus amount?

Help to Buy isn’t linked to new builds, and we would absolutely not be buying a new build given the very many problems with them!

I’m talking about the Help to Buy ISA, not a shared ownership scheme.

@ForensicAccountant

It says you can use your ISA savings at exchange just not the bonus which is a max of £3000 (pp).

Couldn’t you negotiate to have the deposit at exchange reduced by the bonus amount?

Perhaps in non-Covid times. But the rules are so tight at the moment. 20% deposit etc.

You can negotiate with the seller a lower deposit on exchange than 10%. we have typically agreed 5%

@WillSantaBeComingToTown

You can negotiate with the seller a lower deposit on exchange than 10%. we have typically agreed 5%

Just to be clear- you still pay 20% overall and have mortgagee for 80%. But you don't pay the additional until completion

It is very common- hasn't your solicitor suggested this?

The 20% deposit is for the mortgage

To exchange you can agree any amount of money. 10% is typical but it can be anything.

Lots of people don't hand over any physical cash when they exchange - they just sign a piece of paper to say if they pull out after exchange they need to pay the vendor 10%.

When people buy one house and sell another they often don't add any extra funds - just up their mortgage so they wouldn't be expected to come up with 25-50k or more in cash just to cover the 10% deposit at exchange.

Not 100% sure but don't think a mortgage provider releases funds until just before completion so funds from a mortgage wouldn't be available at exchange.

As above. Some deals have a 50% deposit. That doesn’t mean you hand it all over on exchange. 10% is typical.
As your ISA bonus is only 25% (20% if included in total) and they want 20% overall deposit, you would already have 10% (half) available.