HELP TO BUY ISAs FOR SHARED OWNERSHIP PURCHASES
The government’s Help to Buy ISA savings scheme has been around for a few years but in this note we look to clear up the confusion of if, how, and when it can be used for the purchase of a shared ownership property (a shared ownership property is where you part buy and part rent from the Landlord, typically a Housing Association).
What is a Help to Buy ISA?
A Help to Buy ISA is a government savings scheme where the government will boost your savings for the purchase of a first home by up to 25%. For every £200 you save in the Help to Buy ISA scheme you will receive a government bonus of £50 (up to maximum bonus of £3000).
The savings will only receive a boost if they are used towards the purchase of a first property and you will only be eligible as a first time buyer.
The property you purchase must be for a value of no more than £250,000 outside of the London Boroughs or £450,000 inside the London Boroughs (“the threshold”)
Further details on the scheme can be found on the government’s Help to Buy website at the following link:
Help to Buy ISAs for Shared Ownership
There have been many reports and misunderstandings in the press and online as to whether a Help to Buy ISA can be used for the purchase of a shared ownership property if the full market value exceeds the Help to Buy ISA purchase thresholds.
Sadly, we have heard of many sorry tales of buyers not being aware or advised that they will not be able to claim their bonus until it is too late and after months of finding, reserving and progressing their shared ownership purchase leaving them unable to finance their purchase or scrabbling around at the last minute to make up the financial shortfall this creates.
Much of this confusion comes from the fact that as a shared ownership purchaser you will only be buying a share of the property and the price you pay is not the full market value of the property e.g. if a property is worth £500,000 and you are buying a 50% share you will only be paying £250,000 (with rent paid on the remaining 25% share).
However, we would like to dispel this myth and confirm that it may still be possible to claim your Help to Buy ISA where the full market value of the property exceeds the threshold.
The Help to Buy ISA rules do make provision that a buyer can claim their Help to Buy ISA Bonus for a shared ownership property provided that the total price being paid and the Net Present Value (explained below) total less than the threshold.
In the example given earlier where a 50% shared was purchased for £250,000 with a full market value of £500,000 then typically for a new 125 year Lease (which is the term granted for most new shared ownership leases) then the Net Present Value would be approximately £193,000.
This means the total consideration for Help to Buy ISA purposes would be £443,000. This is less than then the threshold in London and means the Help to Buy ISA bonus could be claimed for a purchase in London.
If the Net Present Value in this example was more than £200,000 then the total consideration would exceed the threshold and in that scenario the Help to Buy ISA Bonus could not be claimed.
What is Net Present Value?
Net Present Value (“NPV”) is complicated to calculate and the purpose of this note is not to explain NPV. However NPV is calculated by assessing the rent payable during the life of the Lease. For shared ownership properties (especially on high value properties) the NPV can be high due to the high level of rent payable and the long term of the Lease
There is a common misconception that buying a shared ownership property means a buyer may have to miss out on claiming their Help to Buy ISA Bonus of up to £3000. Whilst this can be true in some circumstances often this is not the case.
Buyers are strongly recommended to take advice from a lawyer who specialises and has a great deal of experience in shared ownership property and the Help to Buy scheme to ensure they are properly advised as to their eligibility to claim a Help to Buy ISA bonus.
For information or to discuss the contents of this article please contact Adam Crawford, Partner and Head of New Build Homes, or one of our specialist New Build Homes team on 020 8567 3477