Taking the first step on to the property ladder can be one of the hardest rungs to climb and many young people are struggling to save the large deposits needed to purchase a flat or a house.
Despite moves in the Autumn Budget to reduce Stamp Duty for First Time Buyer’s, a helpful way of saving for a home in the first place is still to be welcomed by many.
The Government has been quick to recognise the plight of first-time buyers and has introduced a number of new schemes to assist them to purchase their first property.
One such measure is the Right to Buy ISA. Introduced in December 2015 this innovative new savings account was used by more than 8,000 people in June this year to purchase a home, according to the latest HM Treasury figures.
The scheme, which operates as a cash ISA, allows people to receive a 25 per cent subsidy to their savings from Government funding when they are looking to purchase their first property, as long as it does not exceed £250,000 in value, or £450,000 for homes in London.
This scheme allows a minimum bonus payment of £400 and a maximum of £3,000. First-time buyers can open an account with an initial deposit of up to £1,200 in order to maximise their bonus at the start and can make further payments of up to £200 per month. For every £200 you save, you will receive a bonus from the Government of £50. So for example, if you save £200 each month over 2 years, you will earn a bonus of £1,200.00.
The Treasury has shown that with this new ISA the median age of a first-time buyer using the government-backed scheme is 27, which is three years younger than the age of the average first-time buyer.
Am I Eligible?
To qualify for an ISA Bonus, you must:
– be aged 16 years or over;
– have a valid National Insurance Number;
– you must be a UK resident;
– must not own any other property anywhere in world;
– you must live at the property;
– and it must be purchased with a mortgage.
What legal implications should people consider when buying their home using this new innovative ISA?
One of the most significant points to note, and the one that has garnered the most interest, is the clause which states that the ISA bonus can’t be used in the exchange deposit, but can be used as part of the completion funds.
This means that while some expect the bonus to be a contribution towards the all-important deposit, in reality, the money will only be released after an initial deposit is already in place and conveyancing has begun.
This may be a blow to some people hoping to build up a larger deposit, but this bonus can assist with a wide range of other costs, including covering solicitors’ fees.
In order to utilise the scheme when purchasing a home, first-time buyers must use an eligible conveyancer (EC).
It is their role to submit the application for the bonus on behalf of the client. During this process, they must confirm that the client and property meet the eligibility criteria for the scheme.
Typically the time between closing the ISA Account – which remains the sole responsibility of the client – receiving the closing paperwork to enable the bonus application to be made and processing the bonus application is 10 business days. The bonus must then be applied for within a year of the account closing.
Once the bonus has been approved, the payment will be made directly into the conveyancer’s client account.
Where a property is not acquired within three months of closing the account or if the sale does to proceed to completion, it is the responsibility of the EC to return the bonus to the Scheme Administrator within 10 days and return any interest to the client, whilst also completing a Purchase Failure Notice. This notice enables the client to re-open a closed ISA Account if he or she should so wish.
Whilst some first-time buyers have felt let down by the way in which the bonus can be used, it is likely that in most cases buyers will be aware and will utilise additional funds from elsewhere to ensure their deposit is sufficient.
Following on from the success of Help to Buy ISAs the Government has now proposed another new financial product the Lifetime ISA (LISA).
Although not specifically aimed at the first time buyer, the new LISA, introduced in April 2017, allows savers to put up to £4,000 a year tax-free into their account and unlike the Help to Buy ISA, allows savers to place money in stocks and shares investing.
Just like the Help to Buy ISA savers can benefit from a 25 per cent bonus on top of the money they put in that can then be used by first-time buyers to use towards a deposit for their first home or in later life as a form of retirement saving.
To get the bonus a person must buy a property that costs £450,000 or less with any residential mortgage.
However, unlike the Help to Buy ISA a person can get the money in time for exchange on the property, meaning it can be used towards the exchange deposit, as well as the completion deposit that the bank requests.
A buyer needs to have had the LISA open for at least 12 months to get the bonus cash for their first home. If a person needs to buy within a year, it is advised that they use a Help to Buy ISA instead.
A couple can combine multiple LISAs to bolster their bonus and put a larger deposit down, but if one party already owns a home then that person is no longer eligible for a LISA, but the partner can still use one to increase their personal contribution to the deposit.
While it can still be difficult to take that first step on to the property market, both of these products offer first-time buyers a helping hand, although it is always recommended that buyers seek professional legal advice before making any decision to ensure it meets the requirements of future purchases.