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ISA - Help to Buy or not?

1/9/2016

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These new form of ISA’s are being reconsidered by would be home buyers.
 
George Osborne described them as “direct support” for “anyone saving for the deposit on their first home” when they were launched last year but it would now seem the 25% government bonus is not allowed to be used for the deposit.
 
The funds are not made available until the purchase of the property is finished. This could mean many having to borrow from other sources such as the bank or even family, which seems more likely.
 
The rates have also decreased dramatically and not helped by the Bank of England’s most recent cut. One of the top providers was offering 4% but this is now only 1.5%
 
Until now, the ISA's were presented by the Government as a way for first time buyers to save towards a deposit. Many providers have sold them explicitly on this basis.
 
However, account holders have now discovered the bonus is not applied until "completion" and therefore cannot be part of the deposit. Instead it can be used to reduce the cost of a mortgage, only once the transaction is over.
 
The news has left numerous investors confused as to the point of the entire Help to Buy ISA scheme.  A 25% government bonus of up to £3,000 is also applied to the balance when account holders are ready to buy.  A maximum of £200 can be paid in each month on top of an initial £1,000 deposit.  To get the maximum bonus £12,000 must be saved.
 
Despite the bonus not being available until completion and falling interest rates, Help to Buy ISA’s still remain an attractive savings option for first time buyers thanks to the potential £3,000 that is available.  Other high street accounts will not offer this kind of return.
 
The Treasury is accused of misleading savers after initially saying the scheme would provide “direct government support” for those saving for a deposit, despite a flaw in the rules preventing people from using the bonus for a down payment when they exchange contracts.
 
A Treasury spokesman said: “This Government is committed to helping those who aspire to buy their own homes. The Help to Buy ISA scheme provides a government bonus of up to £3,000 to first-time buyers to invest in their new property.  Since its launch more than half a million people have made use of the scheme, with over 22,000 already receiving their bonus.”
 
The Government have received stinging criticism for the lack of clarity.  It seems an issue of over-promising and under-delivering and there are calls from MP’s and others to quickly rectify the issue.
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    Author

    Director, David Hardman has over 20 years experience in financial services.

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