Thanks to rising property prices, soaring living costs and wages that have failed to keep up, buying a home for the first time can be incredibly difficult to achieve.
In a bid to ease the financial pressure slightly and help more people to get onto the property ladder, the government has stepped in with a series of first time buyer initiatives.
Here’s an overview of the schemes available for first time buyers.
Help to Buy Equity Loan
If you’re struggling to save a traditional deposit of 10% or more, the Help to Buy: Equity Loan could help you purchase your first home with a smaller amount.
The scheme will see the government lending you up to 20% of the cost of your newly built home. You’ll need to save a deposit of just 5% and obtain a mortgage for 75% of the property’s value. So if you were to buy a home worth £200,000, you’d need to save £10,000 yourself, the government would lend you £40,000 and a commercial lender would lend you £150,000.
Buyers in London can borrow up to 40% from the government and will only need to obtain a mortgage for 55% of the property’s value.
For the first five years that you own the home, you won’t be charged any interest or fees on the money that you borrowed from the government. However, you will be expected to make mortgage repayments to your lender and these will include interest.
After the first five years in the property, you’ll be charged a fee calculated at 1.75% of the equity loan plus 1%. The fee rate will slowly increase year on year to meet the Retail Price Index. These repayments to the government will sit alongside mortgage repayments.
Forces Help to Buy
Those who work in the armed forces can benefit from a scheme designed to help them get onto the property ladder. The Forces Help to Buy scheme enables those in the armed forces to borrow up to 50% of their salary from the government without having to pay interest on this money. This money must be used towards their first home. A mortgage will be needed to cover the remainder of the property’s value and the borrower will need to abide by their lender’s terms on this loan.
In order to be eligible for the scheme, the buyer must be regular personnel, have completed the prerequisite length of service, have more than 6 months left to serve at the time they apply, and meet the right medical categories.
The amount the buyer can borrow from the government is capped at £25,000.
Right to Buy/Right to Acquire
The Right to Buy scheme is designed for tenants in England, Wales and Northern Ireland who rent their home from their local council. The scheme was created to enable eligible tenants to purchase their home at a discounted price.
The exact size of the discount depends on where the tenant lives and the type of property they wish to purchase.
In most cases, the tenant must have rented from their local council or housing association for at least three years before they can make use of the scheme.
If a tenant doesn’t qualify for the Right to Buy scheme, they may be eligible for the Right to Acquire scheme. This works in a similar manner but the discounts are smaller.
Shared Ownership
The Shared Ownership scheme lets people buy a share of a property from its landlord. Usually, the property is owned by the council or a housing association rather than a private landlord.
The buyer’s share of the property will usually be somewhere between a quarter and three quarters of the home’s value. A mortgage will need to be obtained to pay for this share.
Since the buyer doesn’t own the entire property, they will need to pay rent on the share that they don’t own. This will be at a much lower price than it would be if they rented the whole property in a traditional sense.
Starter Home scheme
The Starter Home scheme was created by the government in a bid to build 200,000 new homes designed especially for first time buyers under the age of 40. The government promised that these homes would be available for 20% cheaper than the market price and would be worth no more than £250,000 outside of London and worth £450,000 or less in the capital.
Help to Buy ISA
The Help to Buy ISA was created to help first time buyers save a deposit.
It allows savers to deposit up to £200 in the account each month and benefit from a 25% top up from the government when they come to purchase a property. Savers can also open their Help to Buy ISA with an initial £1,000 deposit, alongside their monthly contributions.
Money from the Help to Buy ISA can only be used on properties priced at £450,000 or under in London and £250,000 or under across the rest of the UK.
Lifetime ISA
The Lifetime ISA was introduced as an alternative to the Help to Buy ISA and allows people to save for a home deposit and retirement at the same time.
Eligible savers can deposit up to £4,000 into the ISA each year and this will be topped up with a 25% boost from the government. Unlike the Help to Buy ISA, the Lifetime ISA gives savers the flexibility to deposit lump sums and regular deposits if they wish.
There’s a set of criteria that savers must meet in order to open a Lifetime ISA. For example, they must be aged 18 or above but under 40 when they open the account.
If you're a first time buyer, we can help you find the best mortgage deal for you, guiding you through the entire process. Get in touch with our team of mortgage brokers today.
