If you are a First-Time-Buyer, you may have seen the articles in the news this past weekend on how the 500,000 people who have taken advantage of the Help-to-Buy ISA scheme to pay for a deposit on their first home have been ‘scammed’.
Don’t freak out just yet! Your dreams of home ownership may still be realised so please read on.
The Help-to-Buy ISA is a government scheme which offers a 25% bonus of up to £3000, paid by the government when you complete the purchase of your new home. The recent press reports have suggested that the bonus may not be used as the deposit on your first home thus rendering it useless, but this is not the case – you can.
The issue has stemmed from confusion between two different types of deposits. These are exchange deposits and mortgage deposits. So what are they?
– An exchange deposit is the deposit that you provide the seller when exchanging contracts. It acts as a deterrent for buyers to pull out of the purchase.
– A mortgage deposit is what the mortgage lenders use to work out the maximum amount they are willing to lend you.
The news headlines and subsequent articles were discussing exchange deposits. Whilst the 25% bonus cannot be used as part of the exchange deposit (the rest of the money you have saved in the ISA can be), it can be used for your mortgage deposit and will be taken into account by your lenders.
So, if the seller is asking for a 10% of the property’s value deposit, that 10% cannot be made up the bonus – but it is in their best interest to be flexible as they will want to sell their home and they won’t be losing any money in the long run. If they lower their exchange deposit, they will get the deduction later on when the deal is complete.
Whilst you may not be able to use the bonus in the way you had imagined when starting your ISA savings, it can still be used to benefit you and helping you get on the property ladder.
What all of this does is highlight just how complex buying a home is. It isn’t as simple as saving for a deposit, getting a mortgage and moving in. There are many other costs and steps involved – particularly if you’d like to benefit from the Help-to-Buy ISA scheme.
If you are interested in buying your first home and need advice and support – call First Financial Solutions on 01639 262222 or click here to contact us. We can help you through the process, explaining everything clearly along the way to ensure purchasing your first home is as exciting as it should be!