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Help for First Time Buyers
The financial press continues to make gloomy reading for first time buyers. The average two-year fixed mortgage rate has risen to 5.01% from 4.97%, with the average five-year rate now 4.78% from 4.75%. And, interestingly, borrowers with larger deposits have seen some of the most significant rate rises. In addition, Zoopla reports that a household income of £60,000 is needed to get on the property ladder (June 2024). So, what schemes are there that provide help for first-time buyers?
Help to Buy: Equity Loan
Unfortunately, the Help to Buy: Equity Loan scheme finally ended on 31 March 2023.
Mortgage Guarantee Scheme
The Mortgage Guarantee Scheme was due to end on 31 December 2023 but has been extended until 30 June 2025. It offers lenders the option to purchase a mortgage guarantee where a first time buyer has only a 5% deposit. The guarantee applies to 80% of the purchase price and protects lenders from up to 95% of any potential net loss. The remaining 5% of any loss remains the lender’s responsibility, ensuring they retain some risk.
First Homes Scheme
This First Homes Scheme is available in England to help people buy a new build home at a significant discount. Typically, the discount is between 30% and 50% of the market value. First time buyers in specific categories, such as those on low incomes and key workers, receive priority access to the scheme.
The property must be:
- a new home built by a developer; or
- one bought from someone who originally purchased it under the scheme.
To be eligible, you must be:
- at least 18; and
- a first-time buyer; and
- able to obtain a mortgage for at least half the purchase price; and
- buying the property as part of a household with a total income not exceeding £80,000 (or £90,000 if you live in London).
In addition, the local authority may set some additional eligibility criteria. For example, some authorities offer priority to:
- those already living in the area;
- essential workers;
- people on lower incomes.
However, there are exemptions from certain local authority conditions for current and some former members of the armed forces and their families.
Lifetime Individual Savings Account (LISA)
A LISA can be used to save for later life or buy your first home if the purchase price is £450,000 or less. You can save up to £4,000 each year until you are 50, but you must make your first payment into your LISA before you are 40. The government add bonus of 25% to your savings, up to a maximum of £1,000 a year.
If you’re buying with another first-time buyer with a LISA, you can use your combined LISA funds towards the property. However, you should note that there’s a penalty for withdrawing money from a LISA if you are not putting it towards a deposit or withdrawing after age 60.
Help to Buy ISA
As long as you opened your Help to Buy ISA before 1 December 2019, the funds can still be used towards a deposit as long as you purchase before December 2030. As with a Lifetime ISA, you receive a 25% bonus on your savings. However, you are limited to saving £200 per month.
Shared Ownership
Shared ownership is a combination of buying and renting. As the homebuyer, you:
- buy a share in the property between 10% and 75% of the full market value.
- pay rent on the portion you don’t own to the housing association or local authority that owns the balance.
Over time, you can increase your stake in the property up to 100% through the process of ‘staircasing’.
Sometimes, you can buy a share of a home you already rent through a different process called Right to Shared Ownership.
Right to Buy
The Right to Buy scheme allows many council tenants to buy their homes at a discount. Check your eligibility for Right to Buy.
In brief, the scheme applies if:
- the property is your only or main home; and
- it’s self-contained; and
- you are a secure tenant; and
- you have had a public sector landlord for at least 3 years, although it does not have to be 3 consecutive years.
Guarantor Mortgage
If you are a first time buyer with a limited deposit but have family support, you might consider a guarantor mortgage. A mortgage guarantor – often one or both parents – guarantees to cover your mortgage repayments if you default.
If eligible, lenders require guarantors to obtain independent legal advice, confirmed in writing, before completion.