First-time buyers cannot use the government’s Help to Buy ISA scheme for an initial deposit on their first home, it has been reported, with the situation being branded as a “scandal” by experts.

Last December George Osborne launched the Help to Buy ISA scheme, aimed at helping people get onto the property ladder, with more than 500,000 people opening an account. However, it has emerged that it doesn’t work quite how it has been portrayed.

Savers can put a maximum of £200 a month into the ISA, up to a total maximum of £12,000. The government would then provide a 25 per cent cash bonus, and it was widely understood that the money could be used for the initial deposit on a new house. This meant that if you saved up the full £12,000, you would have received £3,000 from the government and therefore have £15,000 to use for a deposit.

However, a flaw is now being reported, with the cash bonus not being paid until after a house purchase has been completed. Once the deal is finished, it can then be used towards the purchase costs, such as the mortgage payments.

Experts have heavily criticised this, saying that the scheme is essentially useless as a result; the 25 per cent bonus provided by the government will not be available for use until after the first-time buyer has bought the home. The major issue facing first-time buyers is the deposit - the very aspect of home buying that the Help to Buy ISA was hoped to ease.

“It is a scandal,” said Andrew Boast, of SAM Conveyancing. “The government launched this scheme declaredly to help people save the large exchange deposit required to buy a home. But what unsuspecting first-time buyers are now horrified to discover is that under the scheme rules they cannot use the bonus as part of this deposit.”

First-time buyers are not the only ones who appear to have been misled by the scheme. Banks including Halifax, NatWest, and HSBC, who advertised the ISA as a way for buyers to save up towards a deposit, may now be forced to change their advertisements.

The HSBC website stated on release of the ISA: “Saving up for a deposit for your first home? Open an HSBC Help to Buy ISA and the UK Government will reward you with an additional 25 per cent of the amount you save, up to a maximum of £3,000.”

The official rules for the Help to Buy ISA scheme on the government’s website also failed to explain this important restriction of the ISA, but it has since been clarified online after the controversial issue came to light.

Some reports are saying that the government and banks may face legal action from savers, because failing to make highly important restrictions clear to customers could go against the Consumer Rights Act 2015. It is possible that thousands of savers have lost money if they had to pull out of house purchases late on, after finding out they wouldn’t receive extra money from the government for a deposit, having believed that they would.

A spokesperson for the Treasury said: “It has always been the case that money saved in a Help to Buy: ISA is for an exchange deposit, with the bonus of up to £3000 per ISA from the government going towards the total funds available for the property transaction.

“The government has published clear guidance and the industry is fully aware that the bonus is only paid on completion.”