Pete Mugleston | Mortgage AdvisorPete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.
Updated: 3rd July 2019 *
Many of our customers have asked us whether using a Help to Buy ISA for a mortgage deposit is possible, and the answer isn’t entirely straightforward. So, we’ve put together this guide to Help to Buy ISAs and deposits, and you’ll find the following topics covered below…
We often hear questions like “can a Help to Buy ISA be used for a home deposit?” and while the answer is yes, think carefully about whether this is the right option for you.
How does a Help to Buy ISA work?
The scheme allows first-time buyers to save for a home tax-free and pick up a government cash bonus of up to £3,000 at the end. Account holders can pay in up to £200 each month (£1,200 in the first month as a one-off) and the government will add an extra 25% to this.
To get the full £3,000 you would need to pay in a total of £12,000 between the day you open the account and the completion of your mortgage agreement.
Here’s the important part that to consider if you’re thinking about using your Help to Buy ISA as a deposit: funds saved in the ISA can be used towards the deposit at the exchange stage.
Can I put funds from my Help to Buy ISA towards a deposit?
We’ve also had customers ask us things like “can I use Help to Buy ISA funds as part of my exchange deposit?” and the answer is yes. You can use capital that you’ve saved up in the account to top up your exchange deposit.
Savers request a closing statement from the ISA provider before the saved funds are withdrawn. The bonus is then calculated on the balance as stated on the closing statement.
The closing statement is then passed to the solicitor who will claim the bonus from the government, so whether saved funds are used towards the exchange deposit won’t make any difference to the amount of bonus you recieve.
You should keep in mind that if you withdraw funds from your ISA and then change your mind about using them for the deposit, you might not be able to put them back into your account, as the account provider may not let you deposit more than £200 that month.
Can I put my Help to Buy ISA bonus towards a deposit?
Technically speaking, there are two types of deposit needed for a house purchase: the exchange deposit and the mortgage deposit (although the same funds are generally used for both). Your Help to Buy ISA bonus can only help you with one of them, in most cases.
Using a Help to Buy ISA for the exchange deposit
As the exchange deposit is due when the contracts are exchanged (i.e. before completion), your government bonus won’t be available at this stage, but there’s no reason why you can’t use capital in your ISA to pay it.
How to use your Help to Buy ISA for a mortgage deposit
The mortgage deposit is due on completion and would usually be footed using the same capital as the exchange deposit, but technically speaking, your government bonus would be available at this stage and can be used to pay off any outstanding fees.
If you won’t have the full deposit amount until your government bonus has paid out, it may be possible to negotiate a deal with the lender. If you’re upfront about your reliance on the scheme and can provide evidence that the bonus is incoming, some providers will allow you to pay off part of the deposit at the point of exchange and the full amount on completion.
The advisors we work with have access to every lender on the market, so if you find yourself in this situation, make an enquiry and they will introduce you to the provider who is best positioned to take a flexible approach to your mortgage application.
How much money can I deposit in a Help to Buy ISA?
The first deposit you make into your Help to Buy ISA can be up to £1,200. After that, you can drop in a maximum of £200 a month until there’s £12,000 in there. Saving the maximum amount means you’d get a government bonus of £3,000 on completion of your home purchase.
How do I get the best rates on a Help to Buy ISA mortgage?
Many of the customers who ask us about Help to Buy ISA deposit rules also want to know how to get the best rates on their Help to Buy ISA mortgage, and this generally comes down to two things: meeting the eligibility requirements at as many lenders as possible and using a whole-of-market broker to find the best deals you qualify for.
Most mortgage providers base their lending criteria on the following factors…
How much deposit you have
Most lenders will expect you to put down at least a 10% deposit on a residential property, although some may be willing to offer you a Help to Buy ISA mortgage with just 5% deposit. That said, if you’re in a position to put down more than the minimum, it can help convince the lender to offer their most favourable rates and reduce the level of risk.
Although your Help to Buy ISA bonus cannot usually be used for the exchange deposit, you can use funds from the account to pay it.
Your credit report
Lenders usually prefer borrowers with clean credit, but it may be possible to find favourable rates from a specialist provider if you’ve had credit issues.
If you’re buying your first property in later life it may be more difficult to get the best rates on a Help to Buy ISA mortgage, due to their being fewer approachable lenders.
Some mortgage providers have upper age caps and won’t lend to anyone over 75. Others go up to 85 and a minority will lend to a pensioner of any age, as long as they are convinced the borrower can keep up with their mortgage payments during retirement.
There are also lenders who are cautious of customers who will pass retirement age during the course of the mortgage term.
The property type
To be eligible for the government bonus, the property must have a maximum purchase price of £250k (or up to £450k in London).
If the property you’re buying has elements of non-standard construction (e.g. thatched roof, timber frame), the best rates might be more difficult to come by as some providers consider this higher risk. Specialist lenders, however, may be able to offer you a favourable deal.
The more confident the lender is that your declarable income will cover the mortgage, the more likely they are to offer you a good deal on your Help to Buy ISA mortgage.
Speak to a Help to Buy ISA mortgages expert about deposits
If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.
Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.
*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA.Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.
Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes.
The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.
Pete's presence in the industry as the 'go-to' for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!
Read more about Pete here...