Help to Buy Isa scandal: 500,000 first-time buyers told scheme cannot be used for initial deposit on homes

A woman walks past an estate agents window
First-time buyers relying on Government-funded Help to Buy Isa bonus for their initial deposit are running into problems Credit: Getty Images

The Government’s much vaunted Help to Buy Isa was on Friday described as a “scandal” after it emerged that first-time buyers will not be able to use it for an initial deposit on their new home. 

More than 500,000 savers have opened the accounts after being told by George Osborne, the former chancellor, that it provided “direct government support” for those saving for a deposit, as a way of getting “Generation Rent” on to the housing ladder. 

But on Friday it emerged that a flaw in the scheme means a 25 per cent government “bonus” on savings will not be paid out until the sale has completed.

Experts say this renders the scheme technically useless as it is designed for those who are struggling to find the initial outlay involved in buying a home and means they will still be reliant on loans from their parents, if available. 

Buyers are usually required to provide a deposit of 10 per cent of the value of the home when they exchange contracts, and for many first-time buyers this is all the equity they have to put into the purchase. 

The small print means the bonus cannot be used for this initial deposit, and can only be spent as part of the purchase cost, for example on mortgage payments, once the deal is completed. 

The Treasury has been forced to admit that the clause was included to stop people benefiting from the bonus without actually buying a house. 

The accounts, which were launched last year, let customers save £200 a month to which the Government adds £50, up to a final total of £15,000.

So far fewer than 1,500 people have used them to help buy a home as the limit on how much can be paid in means they have only just accrued a realistic amount to put toward a deposit.   

Andrew Boast of SAM Conveyancing, said: “It is a scandal. The Government launched this scheme declaredly to help people save the large exchange deposit required to buy a home. But what unsuspecting first-time buyers are now horrified to discover is that under the scheme rules they cannot use the bonus as part of this deposit.” 

Sources at high street banks said they were unaware of the restrictions, which state: “The bonus cannot be used for the deposit due at the exchange of contracts, to pay for solicitor’s, estate agent’s fees or any other indirect costs associated with buying a home.” 

Banks and building societies have been selling the Isas on the premise that they can be used to boost home deposits. They may now be forced to change their advertising.

HSBC's website

HSBC’s website reads: “Saving up for a deposit for your first home? Open an HSBC Help to Buy Isa and the UK Government will reward you with an additional 25 per cent of the amount you save, up to a maximum of £3,000.”

A promotional video by Halifax claims it helps customers “save for a bigger deposit”. Natwest provides an online tool to show how a Help to Buy Isa could “help save for the deposit on your first home”.

They echo Mr Osborne’s comments when he launched the scheme. He said: “This new Isa provides direct government support to anyone saving for the deposit on their first home.”

On Friday night the Treasury backtracked on the stated original aim, claiming it was never intended to boost deposits. A spokesman insisted the bonus was instead designed purely to reduce the size of buyers’ mortgages by boosting the equity they put in on completion.

After The Telegraph raised the issue, the Treasury updated its Help to Buy Isa web page to make the clause more prominent.

Experts who had previously praised the scheme criticised it for simply providing a “perk” to savers who could already afford a home.

The need for a large down payment remains the biggest block to home ownership, the intermediary mortgage lending association says. The average first-time deposit has risen to £33,000, according to Halifax.

Danny Cox, head of financial planning at Hargreaves Lansdown, added: “Hundreds of thousands of Help to Buy Isa savers risk finding a last-minute hole in their finances.”

HSBC said it trained staff to ensure they provide all the relevant information when a customer opens an Isa.

A Halifax spokesman said it would not be appropriate for it to go into details of the scheme rules with customers as it was defined by the Treasury.

NatWest said the scheme had helped some of its customers buy a home. 

A Treasury spokesman said: “It has always been the case that money saved in a Help to Buy Isa is for an exchange deposit, with the bonus of up to £3,000 per Isa from the Government going  toward the total funds available for  the property transaction.”

Case study: 'Help-toBuy Isas let us down and now we need a credit card loan to buy our home' 

Gemma Moreton and her partner
The flaw means 29-year-old Gemma Moreton and her husband cannot use their Help to Buy Isa to buy their first home Credit: John Lawrence for The Telegraph

Gemma Moreton, 29, from Woburn Sands is one of the first Help-to-Buy Isa savers to discover she is unable to use her Government bonus to boost her exchange deposit.

Mrs Moreton, a retail manager, and her husband have been using the scheme since early 2016 to save for their first home.

They have amassed around £4,000 and were expecting a £1,000 bonus to put towards their deposit.

However when they came to exchange contracts they were told they would have to forgo the £1,000 bonus if they used the money to fund the 10pc exchange deposit they needed for their new-build two bedroom home.

The couple now face a dilemma: borrow money using a credit card or abandon the purchase and start saving again. 

Mrs Moreton said: "We are extremely angry with the Government for making it so difficult to claim the money that was meant to 'help us to buy'.

"We are also disappointed with how misinformed the banks and solicitors all are with the Help to Buy Isas as they seem just as confused as we are. We feel let down and stressed as we now face losing the home we thought we were buying.

"Unfortunately we don't have wealthy parents who could help us out so we are now looking at taking out a credit card."

Have you had a problem with Help to Buy or buying  a house in general? We want to hear about it. Email:katie.morley@telegraph.co.uk.

 

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