The Help to Buy: ISA Scheme – How it works basics for conveyancers and buyers
Launched on 1 December 2015 as a further scheme to assist home ownership, this scheme has achieved early success having attracted some 250,000 new accounts already. A further boost to Londoners' buying new build properties came on 1 February with government equity loans under the existing Help to Buy Scheme being increased to up to a possible 40%. There is already speculation as to whether more changes to Help to Buy will be contained in the budget on 16 March.
Unlike other Help to Buy schemes the ISA scheme is only open to first time buyers of residential property. By saving into such an account the buyer can earn a bonus paid by the government to be used when they buy their first property. This will be from £400 to £3,000 depending on the amount saved. The bonus is calculated based on 25% of the closing balance, with a minimum balance of £1,600 to qualify and maximum of £12,000.
The bonus is claimed by the buyer's conveyancer. At Wards all our branches are registered members of the scheme and are 'eligible conveyancers', already set up and able to make these applications. We already have a number of clients keen to benefit from the scheme even though it has only been running for a relatively short time. The time frames which apply to conveyancers making the claim will be longer for 'ineligible conveyancers'.
The buyer will need to close their ISA account and provide the conveyancer with their closing statement. They will need to do this in good time, as we are warned that the whole process may take some 30 working days from when the account is closed. This includes 10 working days to close the account and obtain the closing statement. This will need to be done before contracts are exchanged, so buyers will need to balance keeping the money invested and maybe adding to this, and still allowing sufficient time to enable the bonus request to be processed in good time. The application for the release of the bonus would be made when there is a completion date reasonably in prospect.
The buyer will need to sign a declaration to confirm they do not own, and have never owned any interest in land anywhere in the world. Also that they intend to occupy the property as their only or main residence, save there is an exception here for members of the armed forces.
To be eligible the property purchased must cost up to £250,000, or £450,000 in London. It must also be being purchased with the assistance of a residential mortgage, that is, not one on buy to let terms.
The claim for the bonus must be made within 12 months of the ISA being closed.
There are 3 parts to this.
Stage 1: the conveyancer submits the claim for the award of the bonus, which is accompanied by the closing statement, buyers declaration, and details of the property to be purchased. This can be made at any time.
Stage 2: the scheme administrator issues a bonus approval or rejection notification
Stage 3: the conveyancer can make a payment request and the payment should be received within 5 working days.
The bonus can be held for up to 3 months although in practice this is unlikely to happen as the requirement is otherwise to return it if it is apparent the purchase of the property notified in Stage 1 is not proceeding. The bonus remains the government's money until used to complete the purchase. So it is only used on completion, and cannot form part of the buyers deposit paid on exchange of contracts.
If it becomes apparent that the buyer will not proceed with the purchase in question then the bonus must be returned, and the buyer is provided with a 'Purchase Failure Notice'. This enables the buyer to return their savings, as per their closing statement, to their Help to Buy ISA which may be re-instated or to a replacement.
The final deadline for claims under the scheme is 1 December 2030, unless the government takes steps to end this sooner.