Posts with tag: Help to Buy ISA

The Help to Buy ISA Scandal Explained

Published On: August 23, 2016 at 8:50 am

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If you’ve seen the news over the past few days, you’ll be aware of the Help to Buy ISA scandal. The Telegraph has exposed a clause in the Government’s scheme, which could see the Treasury facing legal action.

At the end of last week, the Help to Buy ISA scheme was described as a “scandal”, after it emerged that first time buyers will not be able to use the Government’s bonus for an initial deposit on their new home.

More than 500,000 hopeful buyers have opened a Help to Buy ISA account since the former chancellor, George Osborne, launched the scheme on the basis that it provided “direct Government support” for those saving for a deposit.

However, it has now emerged that a flaw in the scheme means the 25% Government bonus on savings will not be paid out until the property sale has completed.

Experts claim that this clause renders the scheme technically useless, as it was designed for those struggling to find the initial lump sum to put down on a home, and means that many will still be reliant on loans from family members, if available.

Homebuyers are typically required to provide a deposit of 10% or more of the property’s value when they exchange contracts. For many first time buyers, this is all the equity they have to put into the purchase.

The small print of the scheme means the Government 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 complete.

The Treasury has been forced to admit that the clause was included to stop people having access to the bonus without actually buying a home.

The Help to Buy ISA Scandal Explained

The Help to Buy ISA Scandal Explained

The accounts, which launched last year, allow customers to save up to £200 per month, to which the Government adds 25%, up to a final total of £15,000.

So far, less than 1,500 people have used the ISAs to help them buy a home, as the limit on how much can be paid into the account each month means they have only just accumulated a realistic amount to put towards a deposit.

Andrew Boast, of SAM Conveyancing, comments: “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 deposits. They may now be forced to change their advertising.

HSBC’s website says: “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% of the amount you save, up to a maximum of £3,000.”

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

The advertisements reflect Osborne’s comments when he launched the scheme. He claimed: “This new ISA provides direct Government support to anyone saving for the deposit on their first home.”

Since the scandal broke, the Treasury has backtracked on the original statement, claiming it was never intended to boost deposits. A spokesperson insisted that the bonus was instead designed purely to reduce the size of buyers’ mortgages, by boosting the equity they put it on completion.

After The Telegraph raised the issue, the Treasury also updated its Help to Buy ISA web page, making the clause more prominent.

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

Sky-high deposit requirements remain the greatest barrier to homeownership across the country, the Intermediary Mortgage Lenders Association reports. Halifax claims that the average first time buyer deposit is now a huge £33,000.

The Head of Financial Planning at Hargreaves Lansdown, Danny Cox, adds: “Hundreds of thousands of Help to Buy ISA savers risk finding a last-minute hole in their finances.”

HSBC insists that it has trained staff to ensure they provide all of the relevant information when a customer opens an ISA.

A Halifax spokesperson says it would not be appropriate for it to go into details of the scheme rules with customers, as the Treasury has already defined them.

NatWest believes the scheme has helped some of its customers buy a home.

A Treasury spokesperson states: “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.”

The Managing Director of the National Association of Estate Agents, Mark Hayward, responds to the scandal: “This is quite an extraordinary step from the Government and providers to effectively change the goal posts for first time buyers who have saved in a Help to Buy ISA. 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 onto 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.”

What do you think of the Help to Buy ISA scandal?

One Help to Buy ISA Opened Every 30 Seconds, Says Osborne

Published On: February 5, 2016 at 3:34 pm

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The Government’s Help to Buy ISAs have been opened at a rate of one every 30 seconds since the scheme launched on 1st December 2015, according to Chancellor George Osborne.

The scheme, announced in the Budget last March, gives prospective first time buyers £50 for every £200 they put in the tax-free account. Hopeful homebuyers can save up to £12,000 in the ISA, entitling them to £3,000 of Government money towards their deposit.

The Treasury reports that 250,000 people have opened a Help to Buy ISA since the launch, equivalent to 3,000 a day or one every 30 seconds.

Data from a series of banks that offer the accounts suggests that 75% of the new savers are aged 30 and under.

Opponents to the scheme say it could fuel demand for homes, without increasing supply, and the £2 billion cost to the taxpayer over the next five years could have been better used to pay for thousands of affordable homes.

One Help to Buy ISA Opened Every 30 Seconds, Says Osborne

One Help to Buy ISA Opened Every 30 Seconds, Says Osborne

On a visit to a Help to Buy housing development in Sandbach, Cheshire yesterday, Osborne denied that the scheme is treating a symptom rather than a cause of declining homeownership.

“The best thing the Government can do is to make sure that homes are being built for families in the right places and we have the right infrastructure,” he added. “The fact that so many people are making use of the Help to Buy ISA says to me that there’s a lot of pent-up aspiration there – there are a lot of families who want to get on the housing ladder.”1

The Policy Manager at lobby group Generation Rent, Dan Wilson Craw, gives his opinion on the scheme: “It’s not a big surprise that free money from the Government is proving so popular. The danger for first time buyers is that their extra purchasing power will simply result in estate agents putting their asking prices up.”1 

And Campbell Robb, the Chief Executive of housing charity Shelter, adds: “The fact is, with house prices soaring by almost £20,000 in the last year alone, this is nothing more than a drop in the ocean. In many parts of the country, even the maximum amount you could save with Government help won’t be enough for a deposit, and, with half of renters’ incomes swallowed up by housing costs, for millions, saving anything at all is impossible.”

He believes: “This money would be far better spent on building homes that people on ordinary incomes can actually afford to rent or buy in the first place.”1 

The new Treasury statistics arrive as Labour announces a new independent review into the fall of homeownership – a report led by Peter Redfern, the Chief Executive of Taylor Wimpey.

The Shadow Minister for Housing and Planning, John Healey, insists that increasing homeownership is Labour’s housing priority.

He explains why: “A million more households became homeowners under Labour, but homeownership is now in free-fall.

“Young people aspiring to own a home have been the hardest hit. What used to be a natural part of growing up is becoming a luxury for those on the highest salaries, or whose parents have the deepest pockets.”1

Research by the House of Commons Library, commissioned by Labour, found that 280,000 fewer households headed by under-25s owned their own home in 2015 compared to 2010.

The greatest decline has been among young people in professional jobs – 150,000 fewer of these households own a property, down 16% on five years ago.

The amount of young people in working class jobs that own their home is down 20%, or by 68,000 households. Only one in five young working class households own a home.

1 http://www.theguardian.com/money/2016/feb/04/savers-open-250000-help-to-buy-isas-two-months

 

New Rules Will Make it More Difficult for Graduates to Save

Published On: August 3, 2015 at 11:54 am

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New Rules Will Make it More Difficult for Graduates to Save

New Rules Will Make it More Difficult for Graduates to Save

New graduates will soon find it more difficult than ever to get onto the property ladder.

Hamptons has warned that the new rules on repaying maintenance grants will make it harder for graduates to save for a deposit.

However, Hamptons says that those that can save will be able to use the Help to Buy ISA, which includes a 25% Government bonus.

Six of the UK’s biggest high street lenders have signed up to the ISA scheme.

The new product will be available at Barclays, Lloyds Bank, Nationwide, NatWest, Santander and Virgin Money from 1st December 2015.

The scheme allows aspiring first time buyers to save up to £200 a month, with the Government adding £50 per month.

The Government’s maximum contribution is £3,000 per ISA. If a couple is saving through two ISAs, they will receive £6,000 from the Government.

The bonus is available on homes worth up to £450,000 in London and up to £250,000 outside London.

How the Help to Buy ISA Will Work

Published On: July 18, 2015 at 11:11 am

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The Conservative Government is supportive of first time buyers and aims to help young people get onto the property ladder.

The Government has two plans to solve the country’s housing crisis:

  • Continue making buying and owning a home attractive.
  • Build more private homes.

If you buy a new build property under the Government’s Help to Buy scheme, the Government will give you a loan that is free of interest for the first five years, for up to 20% of the value of a home worth up to £600,000 in England.

How the Help to Buy ISA Will Work

How the Help to Buy ISA Will Work

Details of Help to Buy in Wales can be found here: http://helptobuywales.co.uk/how-it-works/?lang=en.

The Scottish Help to Buy scheme is explained here: http://www.gov.scot/Topics/Built-Environment/Housing/BuyingSelling/help-to-buy.

And Help to Buy in Northern Ireland is detailed here: http://www.nidirect.gov.uk/help-to-buy-mortgage-guarantee-scheme.

This video from the Mortgage Advice Bureau (MAB) explains how Help to Buy works: https://www.mortgageadvicebureau.com/helptobuyscheme.

However, the Government now has a new proposal, the Help to Buy ISA.

Prospective first time buyers can open an account with a building society or bank (it is yet to be announced which will take part) and if they save up to £200 a month, the Government will add to their savings by 25%.

It is believed that savers can use the Government initiative from 1st December 2015. However, it is worth saving now, as hopeful buyers can start off with £1,000.

The Government will provide the additional 25% per month to a maximum of £3,000. However, if two people are planning to buy together, they can have separate ISAs and therefore receive up to £6,000.

The ISA can also be used alongside other schemes such as Help to Buy and shared ownership, as long as it is the buyer’s first home. Therefore, buyers can get a 25% top up to their savings and also receive a loan of up to 20% that is free of interest for five years.

Many first time buyers are told that they must save tens of thousands of pounds, as this is the average deposit of this type of buyer. This is around 25% of the home’s value. However, most lenders will lend at 95% loan-to-value (LTV), so buyers will only need a fifth for a deposit.

If a buyer saves £100 per month for three years using the Government’s Help to Buy ISA, they will save £3,600 plus £900 from the Government. This buyer will have a deposit of £4,500 or £9,000 if they are saving as a couple.

With a £4,500 deposit, a buyer could purchase a house for £90,000. This doubles to £180,000 if there are two buyers.

There are just three regions with an average property price of under £125,000, but there will be one or two-bedroom homes available in these areas for this price.

If a couple saves this amount, they will have enough money for the average priced house in England and Wales, according to the Land Registry.

First time buyers in London typically spend around £300,000 on their first home and outside of London this is £150,000, revealed the Council of Mortgage Lenders (CML).

If saving £100 a month secures just a £4,500 or £9,000 deposit, buyers can still look in expensive areas, where they could use a shared ownership scheme. Homes can be bought in Bristol for £83,000 via shared ownership, £70,000 in Stevenage and £180,000 in London.

First Time Buyers at Lowest Level for Three Years

Published On: July 17, 2015 at 9:57 am

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The property market is already struggling to welcome first time buyers. But new data reveals that things aren’t getting any better.

Latest research shows that the amount of first time buyers has fallen to its lowest level for three years.

Numbers decreased by around 20% during May, compared to May 2014, found estate agents Your Move and Reeds Rains.

First Time Buyers at Lowest Level for Three Years

First Time Buyers at Lowest Level for Three Years

The data also indicates that first time buyers have larger deposits to save for, at an average of £25,134. This figure has increased by 4.2% in 12 months.

Additionally, the proportion of a first time buyer’s income spent on the average deposit is rising for the first time in four months, up 1% to 64.4% of earnings compared to the previous month.

These findings arrive as the Bank of England (BoE) warns that homebuyers are committing to “bigger and bigger mortgages” because house prices are growing faster than wages.

In its latest financial stability report, the BoE cautioned that property debt relative to salaries “remains high compared with historical and international norms.”1

The Bank put new restrictions on borrowers last year, stating that most mortgages will only be approved if the buyer hopes to borrow 4.5 times their income or less.

Your Move and Reeds Rains’ Adrian Gill, says: “Many first time buyers are still on tight monthly incomes, struggling to save while savings rates stay so low.

“Meanwhile, deposits are rising primarily as property prices continue their seemingly unstoppable upwards march. This is wholly due to a lack of housing supply versus a stack of housing demand.

“If we want to see property prices stabilise and deposits fall as proportions of income, the Government must address the housing supply problem, for which there is only one solution: build more homes.”

The average first time buyer home is worth £154,000, up almost 7% on last year. This compares to the average house price in the UK of £214,000, according to Zoopla.

Gill continues: “While buyers may grumble, rising property prices are a positive sign. They demonstrate that the continuing fall in the average mortgage rate combined with the brightening economic outlook has left plenty of demand in the first time buyer housing market.

“This is despite May’s threat of a highly uncertain election outcome. Schemes such as the Help to Buy ISA have encouraged all sorts of buyers to overlook temporary political uncertainties and save up to make the dream of home-owning a reality.”1 

The Help to Buy ISA is due to launch this autumn. It will give first time buyers a £50 top up for every £200 they save towards a deposit. The Government payments are limited to £3,000 on £12,000 of savings and a prospective buyer can only open one account.

It will be introduced after the Help to Buy scheme helped buyers with a small deposit purchase a home.

1 http://www.zoopla.co.uk/discover/property-news/first-time-buyers/?utm_content=bufferb248d&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer#dJGmiABBQ5tDYiBp.97

Government Not Solving the Housing Crisis

For anyone struggling to get a roof over their head, housing is the biggest social challenge in Britain today. But it is believed that housing policies did not alter the outcome of the general election.

This was not because housing is unimportant to voters, but the political parties did not seem to have a similar approach at tackling the crisis. The divide between housing policies left the public confused at what would be done, and this was particularly the case in London, which has been hit the hardest.

In the capital, the housing crisis has worsened dramatically in the last five years. Property prices have increased 9.5 times faster than wages since 2010 and private rents have grown by 20%, as new housing supply has dropped.

So-called affordable rents are now unaffordable to even middle-income households in nine out of 32 London boroughs.

Government Not Solving the Housing Crisis

Government Not Solving the Housing Crisis

As a result, homelessness and rough sleeping levels have risen, worsened by benefit cuts. Welfare reform and increasing prices have also affected the social set up of the capital. Local Housing Allowance (LHA) claimants have been pushed out of central London boroughs, with claimants in these parts falling by over a quarter. The number of claimants in outer-London areas has risen by 12,600.

Right to Buy

The Right to Buy extension, outlined in the Queen’s Speech yesterday, is thought to be an expensive mistake. The policy is likely to cause a reduction in stock, as tenants buy housing association homes and council properties are sold to fund the policy.

Read more about how it will work here: /right-to-buy-extension-explained/.

And even the Conservatives cannot agree that it is the policy we need, with one advisor commenting: “If we have £4.5 billion to spend on a housing policy, explain to me why aren’t we spending it on more housing?”1

It appears that giving away houses will not be as effective as simply building more, with some arguing that housing association tenants already have a secure home.

Help to Buy

The Conservative manifesto did not emphasise enough the need for increasing supply and therefore balancing prices. Instead, they proposed expanding the Help to Buy scheme and introducing the Help to Buy ISA. The Government is therefore focusing more on the demand issue rather than the root of the problem.

Benefit cuts

Further welfare cuts will put added pressure on low to middle-income families. The plan to cut the benefit cap from £26,000 to £23,000 could move more people out of prime areas, as already seen in London.

Homelessness could also worsen, as housing benefit could be abolished for 18-21-year-olds on Jobseeker’s Allowance.

Private renters

And the Conservative manifesto did not even cover those renting from private landlords. Spiralling rents and poor conditions have been affecting these tenants for years, and they could be in for another tough five years. But how could the Government forget them? There are now 11m private renters that have been overlooked.

There is no Right to Buy for private tenants and no mention of controlling rents or regulating the sector.

The only boost that renters could benefit from would be the substantial increase of new home supply, which would have the best impact generally for all.

1 http://linkis.com/a2mTI