The Help to Buy ISA is a huge boon for first-time buyers. It means when you save in it for a mortgage deposit, you’ll get up to £3,000 added on top. The new Lifetime ISA is going to dwarf even that when it launches in 2017 – adding up to £1,000 a year, for up to 32 years, to first-time buyers’ savings.
Yet both these ISAs have a small clause stating the property “must not be rented out after you buy it”. This has caused much consternation among prospective applicants for these ISAs, worried that if their circumstances change they’ll be locked into their homes with no flexibility.
It’s no surprise that my email bag is full of questions on it, because there’s little information anywhere on what this means in practice. In fact I’ve spent the last six weeks trying to get an answer from the Treasury on it. And the reason there’s little information is that no one had got as far as to think of what the policy would be.
However, I’ve finally got a detailed response.
Important: I’m assuming you’re already familiar with what a Help to Buy ISA and Lifetime ISA are. If not, please click these links and read my full guides first.
The Treasury will take a ‘common sense’ approach
The Treasury initially told me it would take a common-sense approach to this. However, I always worry common sense is in short supply, so I asked it to be more specific. And after a while, I got back this official quote, attributable to a Treasury spokesperson…
The intention of the Help to Buy ISA policy is to provide support to first-time buyers who are struggling to take the first step on the housing ladder. In order to receive a Government bonus the individual in question must make a declaration at the time of purchase that they intend to live in the property as their sole residence.We recognise, however, that an individual’s personal circumstances may change at some point in the future, in which case they may need to rent out their property.
The Government is clear that it will not claim Help to Buy ISA bonuses back from people whose personal or professional circumstances have changed and who need to make different arrangements for their property, for example if their employment status or family circumstance changed.
However, in accordance with the rules of the Help to Buy ISA scheme, if a person claims a Help to Buy ISA bonus and does not intend to make the property their home, the Government will seek return of the funds.
What are personal circumstances?
As luck would have it, in my initial set of questions I had sent a range of scenarios to see if I could decipher the Treasury’s approach. So after I got the quote above I double-checked to see what it meant for those – I’m rather happy to say that I got simple clarification on that.
Under each of the scenarios you have set out there appears to have been no intention at the point of purchase to rent out the property so we would not seek to claim back H2B ISA bonuses.
Here are the scenarios I had sent them…
- Moving abroad.
You own the property for two years, then your job means you need to move overseas/to another part of the UK for two years. You expect to return after, so you rent the property meanwhile and then return to the property.
i) As above but the job continues after the two years so you decide to sell the property.
ii) As above but the job continues after the two years so you carry on renting.For each of the above if you can consider the same question but you live there for five years and 10 years first – we’re trying to establish if length of time will change the approach.
- You pay the mortgage off and decide to rent it.
You buy the property, but pay off the mortgage after two years then decide to rent it.
i) As above but you pay it off after five years.
ii) As above but you pay it off after 10 years. - You live there then want to buy elsewhere and rent it out.
After two years of living in the property, you decide you want to upsize to another house, and want to keep this to rent it out.
i) As above but after five years.
ii) As above but after 10 years. - You meet someone and want to move in with them.
After two years of living in the property you’ve met someone/married someone and want to move in with them. You then want to keep this property to rent out.
i) As above but after five years.
ii) As above but after 10 years. - You move back in with parents.
After two years of living in the property you move back in with parents to care for them in their later years, but you want to keep the property to rent out, and plan to return to it later.
i) As above but after five years.
ii) As above but after 10 years. - You die.
You die, and your beneficiaries choose to keep your home to rent out.
So overall it does seem thankfully this is a common-sense approach. If your real intent is to rent the property out but you’re using these ISAs to get a discount… don’t – the state can always claw it back.
However you shouldn’t be too worried that if your circumstances change and you do rent it out you will have to give the money back.
In the case of the clawback, I haven’t yet received information on how it’d happen in practice, nor whether there’d be a fine (I’m assuming not from reading the statement above).
Of course if you are switching to renting at some point, you should get your mortgage lenders permission (which can be tricky) or switch to a buy-to-let mortgage.
Update 9.5.2016. In the comments below many of you have asked a variety of linked questions. I’ve been in touch with the treasury and here are the answers…
– Can you use the rent a room scheme with the help to buy ISA? In a word… yes. See Rent a Room
– Can you rent out the property later if you bought it with a Help to Buy Mortgage Guarantee loan? Yes – though almost certainly you’d need to switch to a buy to let mortgage as you can’t use a residential mortgage to let a property out.
However the government wouldn’t then chase you for any money – after all this scheme is where the lender got security in case you can’t repay, you didn’t get anything extra.
– Can you rent out the property if you bought it with a Help to Buy Equity loan or Help to Buy Shared Ownership loan? No, you’re not supposed to be getting these if you plan on renting. So most likely the same rules as for the Help to Buy ISA apply.
