Photo by Ethan Johnson on Unsplash.
Being able to afford your first home isn’t always easy - finding something in the area you want that fits your needs can be complicated. However, the UK government have put a variety of schemes in place designed to help, usually with affordability.
So if you feel ready to buy your own property but you’re not sure if your deposit is big enough, or you could get the mortgage you need, have a look at a few of the schemes below.
Saving for your deposit can be one of the hardest parts in preparing to buy. Often you’ll need a deposit of at least 10% of the property price. Depending on where you’re buying, that can be a large amount of money. (You can have a look at our Deposit Savings Generator to get an idea of what a deposit in your area would be.)
There are two schemes designed to help you save and give you a government bonus in reward for saving:
Help to Buy ISA
The Help to Buy ISA is available on properties worth up to £250,000 in the UK and £450,000 in London. You get a 25% boost on your savings, and you can put up to £200 per month into the account. If you’re buying with someone else, you can each get an account and put it towards your home.
Be aware that you can’t actually access the bonus until it has been withdrawn by your conveyancing solicitor and this often happens after the exchange of properties (when you pay your deposit). This means often the bonus money goes towards your mortgage payment or other costs, rather than including it in the deposit.
Find out more about the Help to Buy ISA
NOTE: Please be aware that Help to Buy ISAs will not be available to open from 30th November 2019. If you have a Help to Buy ISA already, they will continue to function as usual.
The Lifetime ISA works in a similar way - you get a 25% bonus for saving. You can use it on a property across the UK up to £450,000, and again your conveyancing solicitor will need to withdraw the money. However, the bonus is paid into your account yearly, and you can put up to £4,000 a year into the account. There is no monthly limit.
The Lifetime ISA is designed for younger savers - you have to be under 40 to apply for a Lifetime ISA account. You can use the money for a property, or you can wait to access it after you reach your 60th birthday. If you withdraw the money for any other reason, you’ll lose your bonus.
Find out more about the Lifetime ISA
Help to Buy Equity Loan Scheme
Applications for the Help to Buy Equity Loan Scheme ended on 31st October 2022. Purchases cannot be completed using the scheme after the deadline of 31st March 2023.
Separate from the ISA, the government have also put together a scheme centred around helping first time buyers with a lower deposit buy a property. Sometimes the issue with buying a property is that you have saved a deposit, but you wouldn’t be able to borrow enough from a lender to make up the total amount. That’s where the equity loan comes in.
You provide a 5% deposit, your mortgage lender will offer a 75% mortgage and the government will bridge the gap with an equity loan for the remaining 20% (in London, the equity loan can go up to 40%).
Help to Buy is available on new build properties only. Your equity loan is interest free for the first 5 years (though you will pay £1 per month in account fees) and then you will begin to pay interest. During this time you will also be paying your mortgage.
This loan means that the government has equity in your property. If you sell the property, the government will receive 20% of the property value back. That means if your property increases in value you’ll be paying back more than you borrowed.
You can also buy back the equity from the government, paying back half or the whole amount. This will require a surveyor to assess the value of the property. Some lenders are now also allowing you to remortgage to consolidate the equity loan, but you will need to look at interest rates to check if this is a good deal.
Find out more about Help to Buy Equity Loans.
Shared Ownership is another option that can lower the price of the property. You will buy a portion of the property, which often means you can have a lower deposit and will require a smaller mortgage.
You will then pay your mortgage, and a monthly rent on the remaining portion of the property you don’t own. There may also be service charges or fees. The rent is meant to be reduced, so that you can pay every month whilst building up equity in the property.
You can decide to ‘staircase’, which means you can increase your portion of the property until you have bought all of it, if you wish. It is worth considering what will happen when you sell the property - often the housing association want first refusal (and this may be in your contract) but also owning too high a portion of the property may make it unaffordable for people.
You can also simply keep your percentage, stay as long as you wish and then when you sell the property, use your equity as your deposit for your next home.
There are some limitations on Shared Ownership homes, like making changes to the property, as you don’t own the whole thing.
Find out more about Shared Ownership
Stamp Duty Exemption
One of the main advantages first time buyers have when it comes to making savings is that they receive either an exemption or reduction in Stamp Duty Land Tax in England and Wales. You pay no Stamp Duty on properties up to £300,000 and pay a discounted rate on any property priced between £300,000 and £500,000.
To qualify neither you nor the person you are buying with can have owned residential property previously, anywhere in the world. Nor can you qualify if the person you are married to has already purchased property, regardless of them being involved in your purchase or not.
If you are buying in Scotland, you will pay no Land and Buildings Transaction Tax (the equivalent tax) on properties up to £175,000. If you are buying in Wales, there is no exemption for Land Transaction Tax for first time buyers, but the thresholds are generally higher so you may pay nothing anyway.
Find out more about Stamp Duty for first time buyers
Other perks for first time buyers
Whether you use a government scheme, an ISA or anything else, there are advantages to being a first time buyer. Some mortgage lenders offer discounts, better rates or cashback opportunities for first time buyer mortgages.
Find a mortgage broker to help you get the best FTB deal
Being a first time buyer can often be an advantage when looking for properties, because you’ll be chain free and this can be appealing to a seller in a hurry.
Buying your first home should be exciting, so be sure to look into as many schemes and opportunities as possible to work out which are best for you. Knowing how long you plan to stay in your home and what you want from your property can go a long way in identifying the perfect property for you.
for more information for first time buyers visit our first time buyers hub.