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Help to Buy ISA deposit

Written By:
Myles Robinson - Expert Finance Advisor

Posted: Aug 8, 2022

Help to Buy ISA deposit

Can I use a Help To Buy ISA to make a deposit on a house?

The government bonus help to buy ISA scheme closed on the 30th November 2019.

We are often asked questions such as ” Can a Help To Buy ISA be used to deposit a home?”. While the answer is yes, you should consider whether this is the best option for your needs.

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What is a Help to Buy ISA?

The scheme allows first-time homebuyers to save tax-free for their home and receive a cash bonus from the government of up to £3,000 at its end.

Account-holders can pay as little as £200 per month, with the government adding an additional 25%.

Between the time you open your account and when you sign your mortgage agreement, you will need to pay £12,000 in total.

Consider this important point if you are thinking of using your Help to Buy ISA for a mortgage deposit fund: the funds in the ISA may be used as the deposit at the exchange stage.

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Can I use funds from my Help to Buy ISA to make a deposit?

Customers have also asked us questions like “Can I use Help to Buy ISA funds to fund my exchange deposit?”. To top up your exchange deposit, you can use capital that’s been saved in the savings accounts.

Before the funds are withdrawn, savers must request a closing statement from their ISA provider. The closing statement will indicate the amount of the bonus money.

The solicitor will then give the closing statement. This will allow the government to claim the bonus money. It doesn’t matter if the funds were used to deposit the currency.

Keep in mind that if funds are withdrawn from an ISA but you decide to use them for a deposit, they may not be able to be put back into your account. The account provider may not allow you to deposit more than £200 per month.

Can I use my Help to Buy ISA Bonus towards a deposit

The exchange deposit and mortgage deposit are the two main types of deposits required for house purchases to become a residential property owner. However, they can be used in different ways. In most cases, your Help to Buy ISA bonus will only assist you with one.

Use a Help To Buy ISA to deposit your exchange funds

The home exchange deposit must be made when contracts are exchanged. Your government bonus will not be available until the contracts are exchanged (i.e. before completion), but you don’t have to use capital in your ISA for it.

How to use your Help To Buy ISA to make a mortgage deposit

The mortgage deposit must be paid upon completion. It would normally be made using the same capital as the exchange deposit. However, technically your government bonus would still be available at this stage. The bonus paid can be used to pay any outstanding fees.

It may be possible for the lender to make a deal if you don’t have the entire deposit amount after your government bonus has been paid. Some providers will let you pay a portion of your deposit at the point of exchange and the entire amount upon completion if you are honest about your dependence on the scheme.

The advisors that we work with have access to all lenders on the market. If you are in this situation, send an enquiry. We will refer you to the provider best suited to offer a flexible approach to your mortgage loan application.

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What is the maximum amount I can deposit into a Help To Buy ISA?

Your first deposit into the Help to Buy ISA may be as high as £1,200. You can then deposit a maximum amount of £200 per month until you reach £12,000. You’d receive a £3,000 government bonus if you save money which is the maximum amount.

How can I get the best rate on a Help to Buy ISA Mortgage?

Customers who enquire about Help to Buy ISA deposit requirements also want to know how to obtain the best rates for their Help to Buy ISA mortgage. This generally boils down to two things. First, you need to meet the eligibility requirements of as many lenders as possible. Second, you will need to use a whole-of-market broker to help you find the best deals.

These are the main factors that mortgage lenders consider when deciding whether to lend.

What amount of deposit do you have?

While most lenders require you to deposit at least 10% of the home purchase to secure a residential property, some lenders may allow you to apply for a Help to Buy ISA mortgage using only a 5% deposit.

If you are able to deposit more than the minimum, it may be possible to convince lenders to offer the most favourable rates and lower the risk.

You can pay the exchange deposit with funds from your Help to Buy ISA account, even though the bonus is not usually available.

Credit report

Lenders prefer borrowers with good credit. However, it is possible to get favourable rates from a specialist mortgage lender for those with bad credit.

Your age

It may be harder to obtain the best rates on a Help to Buy ISA mortgage if you are a first-time buyer later in life. This is due to them being less accessible lenders.

Some mortgage lenders have higher age limits and won’t lend money to people over 75. Some mortgage providers will only lend to seniors up to 85, while a minority of lenders will lend to anyone over 85 as long as they believe the borrower is able to pay their mortgages in retirement.

Lenders are also cautious about customers who reach retirement age during the term of the mortgage. New applicants who are retired would need to show they are saving money. Lenders have to accept the liability that you can pay for the residential mortgage over a period of time.

Type of property

The maximum property purchase price must be at least £250k, or up to £450k in London, to qualify for the other government schemes.

The non-standard construction elements in the property you are buying (e.g. thatched roof or timber frame might not be the best rate as providers may consider these higher-risk properties to be less risky. However, specialist lenders may be able to offer you more money for a better deal.

Income and affordability

Most mortgage providers limit their lending on the basis of x4.5 borrowers’ income. Under the right circumstances, some go up to x5 while a minority goes up to x6. A specialist lender may be needed if you are looking for a loan with self-employed income, or if you want to apply for a loan with commission or bonus income.

The lender’s confidence in your income is sufficient to cover the mortgage will increase the likelihood that they will offer you a great deal on your Help to Buy ISA mortgage.

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Talk to a Help To Buy ISA Mortgages expert about deposits

Our mortgage advisors are available to answer your questions or to provide advice. Call today for top-quality mortgage services.

Relax and let us find the right broker for you. There is no charge and absolutely no obligation to affect your credit rating so contact us now.

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