Update: The Telegraph have now reportedthat banks have been 'privately telling customers' that they were mislead over Help to Buy ISAs. The newspaper is urging the government to rewrite the restrictive clause, which prevents savers using their Help to Buy ISA government bonus as part of their deposit, after it emerged that many were not aware of this restriction. The Telegraph also reports that 'Conservative MPs on the Treasury committee and consumer campaigners' are backing their calls for the government to rewrite the clause which prevents buyers from using the Help to Buy bonus as part of a down payment.
The former Chancellor’s Help to Buy ISA scheme has been branded a ‘scandal’. Experts claim that both the Government and banks may have broken consumer law by failing to make restrictions clear and could face legal action from thousands of savers.
The Telegraph reports that some first-time buyers who took out Help to Buy ISAs have been unable to use the 25 per cent government ‘bonus’ on their savings as part of their initial deposit when purchasing a property because it is not paid out until the sale has completed.
When the scheme was announced by George Osborne it was marketed as ‘direct government support’ for would be home owners trying to save enough for a deposit, and billed as a way of giving ‘Generation Rent’ a leg up onto the housing ladder.
The problem lies in the small print. According to *The Telegraph *numerous buyers have realised at the last minute that they cannot use the government bonus as part of their initial deposit because it can only be spent as part of the purchase cost, i.e. on mortgage payments once the sale has gone through.
Katie Morley, The Telegraph's Consumer Affairs Editor, writes, ‘the restriction has come as a shock to many savers because major ISA providers including Halifax, HSBC and Natwest failed to mention the condition anywhere in their literature.’
‘The clause was also missing from the official Help to Buy ISA scheme rules and until last week only appeared in an FAQ area of the Treasury’s Help to Buy ISA webpage.’
‘Following the newspaper’s inquiry last Friday it [the Treasury] quietly updated the site to include the wording on its front page.’
Many buyers, it seems, were unware of the restriction. The Help to Buy FAQs page now states ‘the bonus cannot be used for the deposit due at the exchange of contracts, to pay for solicitor’s, estate agent’s fees or any other indirect costs associated with buying a home.’
The Consumer Rights Act 2015 states that contracts must 'clearly state the main elements of a deal in a transparent and prominent way'. A product's terms must also be prominently displayed 'so an average well-informed, observant and circumspect consumer would be aware of them'. If these reports are true then it's possible that both banks and the Treasury could be in breach of these protections.
The Treasury has attempted to distance itself from the confusion over how the Help to Buy ISA scheme works, telling The Telegraph that customers should ‘take it up with their bank’.
A spokesperson for the Treasury directed _The Debrief t_o a letter written by the Economic Secretary in today's * Telegraph* which reads:
‘I want to reassure those looking to get onto the property ladder that the government's Help to Buy: ISA is designed to support you.’
‘Since its launch, 22,000 proud home owners have successfully taken advantage of the Help to Buy: ISA and the scheme is running smoothly.’
‘The Government has published guidance to help people understand the scheme. There are also many popular consumer finance websites, such as Money Saving Expert, which offer clear explanations of the ISA.’
‘It is simply wrong to say that the Help to Buy: ISA bonus can only be used towards monthly mortgage repayments. The bonus funds are available prior to completion and contribute towards an individuals’ overall deposit.’
‘When calculating the size of your mortgage, lenders will seek evidence of the funds that you have available for a deposit. This includes a consideration of both the money you have in your Help to Buy: ISA account and the size of your forthcoming bonus.’
The lack of clarity as to how the Government's bonus works seems to be causing confusion amongst both banks and consumers. Three main banks gave the following comments to The Telegraph when contacted off the back of their investigation:
An HSBC spokesman said: 'We understand that customers want clarity and we will be looking at the wording of the T&Cs to make sure it is as clear as possible.'
A Halifax spokesman said it would not be appropriate for it to go into details of the scheme rules with customers as it was defined by the Treasury.
NatWest said the scheme had helped some of its customers buy a home.
Have you experienced difficulties with your Help to Buy ISA? Let us know @thedebrief on Twitter
This story was updated on August 23rd 2016 to reflect changes in the story
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This article originally appeared on The Debrief.