The government’s Help to Buy ISA scheme has come under attack after it emerged that first-time buyers won’t be able to use it to fund a deposit for a house.
Help to Buy ISAs give first-time buyers saving for a deposit the opportunity to put away £200 a month in a dedicated ISA that the government will top up by 25%, up to a maximum of £3,000.
Deposits are typically in the region of 10% of the value of a property and can run into tens of thousands of pounds. For many aspiring home owners they are the biggest barrier to getting onto the property ladder.
When the scheme was unveiled by George Osborne last year he said it would provide direct government support to anyone saving for a deposit on their first home.
However, contrary to how the scheme has been portrayed, the 25% bonus will only be paid out once the house has been purchased, meaning borrowers will not be able to use it to fund a deposit.
Mark Hayward, managing director of the National Association of Estate Agents, said: “Consumers have been putting money aside on the basis that they believed it would be applied to their deposit on a new home. To now clarify that it is not actually available until completion is the perfect example of a painful lack of transparency and frankly nothing short of deception.
“First-time buyers are already struggling with getting on to the housing ladder and this much hyped initiative was welcomed at the time as a way of helping them, but in fact could have ended up costing buyers if they have gone ahead with a purchase believing that the bonus counted towards the deposit.”
Labour’s shadow chief secretary to the Treasury Rebecca Long-Bailey said: “People up and down the country are struggling to buy their first home and are being let down by the government’s failure to act.
“Once again the Tories are failing generation rent with empty promises. It is typical of the Tories to design a scheme that doesn’t help working people get on the housing ladder but instead only provides a little perk to those that can already afford it.”
Ray Boulger, technical director at the mortgage broker John Charcol, said: “Bearing in mind the the Financial Conduct Authority requires lenders to not be misleading in their promotional material it is not unreasonable to expect the government to abide by the same rules.”
Despite this criticism, he thinks the Help to Buy ISA is still a great deal for homebuyers.
“The Help to Buy ISA offers a fantastic return on your money with lenders offering rates up to 2.5% and the 25% tax free bonus on top from the government. The bottom line is, why wouldn’t you take one out if it means getting that bonus?”
The Treasury refuted claims that it had in any way misled people taking out a Help to Buy ISA and that it has always been clear that the bonus was only payable on completion of the scheme.
A Treasury spokesperson said: “The Help to Buy ISA has been communicated in line with existing government and industry practices. The scheme rules and associated material has always been clear that the bonus will be paid just prior to completion and will go towards the equity in the property.”
The scheme was launched on 1 December last year and you can save £200 a month up to a maximum of £12,000.
While over 500,000 Help to by ISAs have so far been taken out, only 1,500 have been used to buy a home.
You can open an account with a one-off lump sum of up to £1,000 in addition to the monthly maximum, while couples buying together can combine their bonuses, giving them boost of up to £6,000.
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