Help to Buy Isa Leads to First Time Buyer Confusion
The Law Of... failing to explain financial products
Vaunted by the then Chancellor of the Exchequer, George Osborne, as "direct government support to anyone saving for the deposit on their first home", the Help to Buy Isa was last year heralded as a way for first time buyers to get their feet on the housing ladder.
It has since emerged that the scheme contains an unexpected condition
which has left some people with a financial shortfall and unable to purchase their prospective home.
Mark Underhill, Operational Accounts Manager with Simpson Millar's Conveyancing team
, takes a closer look at the Help to Buy Isa and the issue that has arisen.
On Completion of Sale
"Too good to be true,"
is how one disgruntled homebuyer described the financial product
, after he and his girlfriend were left unable to raise their deposit due to their misunderstanding of the scheme.
So what exactly caused the problem?
The Help to Buy Isa was launched last year in face of an unaffordable housing market that was largely locking out first time buyers.
The idea was that young people looking for a home of their own
could deposit a maximum of £200 per month (following an initial lump sum of up to £1,200) and as well as the interest this accrued, there would be a Government bonus when the time came to buy. This bonus would pay at 25% of the amount saved and total no more than £3,000.
To achieve the maximum bonus you would have to save £12,000, with it being paid on completion of the sale.
This is where the issue arose. Many were unaware of this particular clause, thinking the extra money would be available to put towards the deposit. This has left some either unable to pay their deposit or having to seek funding elsewhere.
In addition to this, what started out as fairly attractive interest rates at launch – Halifax and Santander were both offering 4% - have now taken a dramatic dive, with Santander cutting their rate to 1.5% earlier this year. As such, it will now take longer for first time buyers to qualify for the maximum bonus.
Possible Legal Action
The confusion has led to claims that both the Treasury and the banks could face legal action from those who feel they've been misled.
James Daley, the director of Fairer Finance, an organisation that campaigns for more customer-driven and transparent banking, told the Telegraph newspaper
:"The law says that onerous conditions – such as not being able to use the bonus for exchange deposits – should be pointed out clearly to customers. Providers failing to do so may well find they lose if taken to court."
Since the news broke, the Government has updated its Help to Buy website
to include the condition on the home page. Up until then then it was only mentioned in the FAQ section.
Mark Underhill comments:"Before opening an account, it is the duty of the provider to inform the customer how the scheme works and when the funds will become available. An evident failure to do so has led to the situation where there's this uncertainty and people have to seek alternative sources of finance.""At Simpson Millar we ensure clients who are using the Help to Buy Isa are aware of when the product can be used, but this can be too late in the case of individuals who have calculated their funds based on the belief that the Government bonus will be available for the deposit.""Due to the short period of time in which this Isa has been operating, bonuses so far accrued will be smaller, but it could have a bigger impact 4 years along the line, when people are reaching the upper levels and higher returns of the scheme."