Help to Buy ISAs

When you're buying a home there are two types of deposit (though the same money's generally used for both). And, as the Government decided you'd only get the Help to Buy ISA bonus at completion (so no one could get it if they pulled out of a property sale), it only helps you with one of these types; and it's important to understand the difference.

• The Home Exchange Deposit: During the process of buying a property, after your offer is accepted, once you've checked everything out you normally exchange contracts with the seller. At this point the seller will usually ask you to put down a 10% deposit (sometimes it can be negotiated lower to 5%) to secure the property. After that no one else can trump you as both you and the vendor are committed to the sale.

  You then have time to work through your finances and any other issues towards completion which is when you and the mortgage company hand over the remainder of the cash (see Buying a Home Timeline for more).

  While you can use the money you've saved in a Help to Buy ISA towards this exchange, it's only at completion that you receive the mortgage money and Help to Buy ISA bonus; so the bonus won't help towards the home exchange deposit.

  So, if you are relying on the Help to Buy ISA bonus to get you to 10% (or indeed only have a 5% deposit in total), it could be a problem. However, in most cases, it'll be worth trying to negotiate with the seller (probably via your solicitor) on this.

  Be honest with them about the Help to Buy ISA bonus. If the seller wants the sale to go through, they could agree to a lower deposit (possibly with the right to chase you in court for the full 10% if you later pull out).

  But, according to brokers we've spoken to, as long as you are upfront about your reliance on the Help to Buy ISA bonus, it shouldn't be a major issue. Most vendors are unlikely to pull out of a house sale because of a small shortfall which will be made good in just a matter of days when you finally complete.
  
  

• The deposit at completion (sometimes called the mortgage deposit): It is this final deposit when you actually become the legal property owner – not the specific exchange deposit described above – which the Help to Buy ISA bonus is for.

  Say you're buying a £100,000 property, and have saved £8,000 in a Help to Buy ISA; with the bonus you'll have £10,000, so a 10% deposit in total. You’d have been able to use your £8,000 at the exchange stage but can only get the additional £2,000 at this point of completion. That helps to reduce the amount you need to borrow and cuts the cost of your mortgage rate too.

The minimum amount you need to get a bonus is £1,600 (you would get £400) and while that takes 'three months' to do, in practice you can do it far quicker with most accounts. The reason it's three months' worth is because you can deposit £1,200 in month one then up to £200 in each subsequent month.

Yet as a month is a calendar month, in practice you may be able to do this far more quickly, if the dates fall for you.

For example you could put £1,200 in on 31 January, then £200 in during February, and the final £200 in on 1 March just 30 days later and you'd be ready to go.

Therefore, assuming you're eligible, even if you have savings elsewhere, if you won't be completing within the next month, it's worth moving what you can into the Help to Buy ISA to get the bonus. Do check that your bank allows this – some have a cut-off date each month for paying in.