Government help for first time buyers
There are a variety of affordable home ownership schemes that are aimed at helping people buy their own home, and many of these schemes are specifically aimed at first time buyers. Most of the current government schemes fall under the umbrella term of “Help to Buy”.
The Help to Buy schemes range from savings options designed to help buyers build up a property deposit, to lender incentives that aim to make mortgages more readily available to borrowers.
Help to Buy Scheme
The original Help to Buy scheme had been created by the government to allow those who do not have a large deposit but can afford the monthly mortgage payments to purchase a home.
To be eligible for the Help to Buy scheme, you must:
Have at least a 5% deposit
Be looking to buy a house for £600,000 or less
Be purchasing a property you wish to live in as your main residency and not as a buy-to-let
Not have any share in another property
The ability to reduce the minimum deposit can free up funds for the moving process. As it is likely to be your biggest purchase, it is vital that you are able to have a quality and experienced conveyancing solicitor for your move to ensure the experience runs smoothly.
The previous Help to Buy scheme had two parts: Help to Buy equity loans and Help to Buy mortgage guarantees:
Help to Buy - Equity loans
Equity loans are available to first time buyers and home movers who purchase a newly built home in England, valued at up to £600,000. You will need to have a deposit available of at least 5 per cent, and take out a mortgage for up to 75 per cent of the purchase price. The remainder is topped up by a government “equity loan” of up to 20 per cent of the price. The equity loan is free of interest or charges for the first five years. In the sixth year, a fee equivalent to 1.75 per cent of the loan value is charged. Each year after that, the fee increases by an amount linked to inflation.
Equity loans are available where the new-build property is purchased from a list of registered builders; the list includes many of the leading UK homebuilders such as Barratt, Persimmon and Taylor Wimpey. Applications should be made through your local Help to Buy agent and to find out more, read our guide with further information on the Help to Buy Equity Loan.
The Help to Buy equity loan scheme in England, and similar equity sharing scheme in Wales, have been extended until 2021, however the extension of the scheme in Scotland will run until 2019.
Update: As of August 2019, people using the Help to Buy Equity Scheme will be able to apply for 35 year mortgages. Up until now, they were not able to apply for mortgages longer than 25 years.
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Help to Buy - Mortgage guarantees
The Help to Buy mortgage guarantee ended in December 2016.
Originally, it was a scheme whereby the government would underwrite a portion of the mortgage debt; it was not a guarantee to the homebuyer, but rather an agreement made with lenders that intended to make mortgages more readily available to buyers with only a 5 per cent deposit.
The mortgages were available to both first time buyers and home movers buying a home for up to £600,000. The property could have been either a new-build or an older home bought outright (not on a shared ownership or shared equity basis). The mortgage must have been repayment, not interest-only, and you could have applied directly to any of the 13 UK lenders that took part in the scheme.
Help to Buy - London
Launched in February 2016, the Help to Buy London scheme is an extension of the existing Help to Buy Equity loan scheme that began in 2013 and is set to run until 2021.
Government announced that it will help buyers of new-build homes worth up to £600,000 in London, by offering them an equity loan of up to 40%. Loans will be interest free for the first five years and can be repaid at any stage or when you sell the property. Buyers will need a minimum deposit of 5% to secure a mortgage of up to 55%.
Help to Buy - Shared ownership
Shared ownership allows you to take out a mortgage to buy a share of the property – between 25 per cent and 75 per cent of the home’s value – and pay a proportional rent on the remaining share which is owned by the local housing association. The scheme is available to first time buyers with a household income of less than £80,000 (£90,000 in London) and can be used to buy a new-build or older home through resale programmes from housing associations. Bear in mind that all shared ownership properties are leasehold, which will involve paying ground rent and service charges.
It is possible to buy further shares in the property at any time, up to 100 per cent – this is referred to as “staircasing”. Further share purchases are based on the market value of the time, and you will have to pay for the valuation to be carried out. If you later want to sell a property in which you own a 100 per cent share, the housing association has first refusal on the purchase. If you own a smaller share of the property, the housing association has the right to find a buyer.
Specific shared ownership schemes are also available for older people and for those with long-term disabilities. You can obtain more information from your local Help to Buy agent.
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Help to Buy ISA
The Help to Buy ISA (Individual Savings Account) was launched on 1 December 2015. With a Help to Buy ISA you can save any amount up to £200 per month and receive tax-free interest plus a generous 25 per cent bonus – up to a maximum of £3,000 – which will be given to savers once they complete the purchase of their first home.
The Help to Buy ISA bonus is available for properties worth up to £250,000, or up to £450,000 in London, the bonus can be used once completion of the property has taken place. If you would like to use some of your Help to Buy ISA savings towards your deposit, then you can withdraw these funds at any time.
For more information, you can read our article on the Help to Buy ISA and Lifetime 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 is available from April 2017 and can be opened by savers aged between 18 and 40. The account allows you to save up to £4,000 each year towards your first home, or your retirement. Aside from the annual limit, there is no monthly minimum or maximum to the amount you can save. Like the Help to Buy ISA, it pays a 25 per cent bonus on your savings; in this case the bonus is paid for every year up until your 50th birthday. The accrued savings, interest and bonus can be used towards a deposit on a first home of up to £450,000
For more information on the Help to Buy scheme, here is a link to the government’s website: https://www.gov.uk/affordable-home-ownership-schemes/overview.
Updated January 2017