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
Applications for the Help to Buy Equity Loan Scheme ended on 31st October 2022.
Equity loans were available to First Time Buyers and home movers who purchase a newly built home in England, valued at up to £600,000. You needed a deposit available of at least 5 per cent, to take out a mortgage for up to 75 per cent of the purchase price. The remainder was topped up by a government “equity loan” of up to 20 per cent of the price. The equity loan was 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. People using the Help to Buy Equity Scheme could apply for 35 year mortgages.
Equity loans were 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.
Paying back the Help to Buy Equity loan
If you took out a loan before the deadline, you have a choice when your 5 years end – you can start paying off the interest (arrange this with your Help to Buy agent) monthly, you can remortgage and consolidate your loan into your mortgage (there are not many options for this currently) or you can sell your property.
The Equity Loan amount itself is not paid off per month – it must be paid in a lump sum. You can pay off either half of the amount you borrowed, or the whole 20% loan.
You must pay the loan back either when the property is sold, or within 25 years of living in the property. For most people, paying off the loan when they sell their home is easiest.
It’s important to remember that because it’s a percentage of the property, you may be paying back a different price. If your property has increased in value, you’ll be paying back a lot more.
For example, if you bought a house worth £200,000, you would have taken out an equity loan of £40,000. When you sell the property, it is now worth £250,000, so 20% of market value would be £50,000.
If you wish to repay the loan without selling it, you would need to get a Help to Buy valuation
to assess the price of your property, and the value of the loan would be worked out accordingly. You can then only pay back either 50% of the loan, or the whole lump sum.
Help to Buy - Mortgage guarantees
The Help to Buy mortgage guarantee ended in December 2016.
Originally, this 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 was an extension of the existing Help to Buy Equity loan scheme, that ran from 2013 until 2021.
The Help to Buy London scheme was an equity loan provided by the Government to support buyers of new-build homes costing up to £600,000 with an equity loan of up to 40%.
The loan is interest free for the first five years and can be paid back at any point or when the property is put up for sale. This still applies to those who took out the loan before the scheme ended.
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.
Help to Buy ISA
The Help to Buy ISA (Individual Savings Account) was launched on 1 December 2015 and ran until November 2019.
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% 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.
Even though you can no longer open a HTB ISA, if you opened one before the deadline, it will still work as it did before. The deadline for claiming your bonus on a new home is 2030.
Using the Help to Buy ISA
Just before exchanging on your property, you will need to inform your Help to Buy ISA provider that you will be closing your account. It is important that you do not withdraw all of your money as you will need your Help to Buy ISA provider to produce a closing letter for you. If you do not have a closing letter you will not be eligible for the ISA bonus. The reason you cannot apply for your bonus sooner is that if helps avoid any issues that may arise if your property purchase fell through at an earlier stage.
You will need to present the closing letter to your solicitor or conveyancer who will apply for the ISA bonus on your behalf through an online portal. A solicitor or conveyancer will charge up to £50 plus VAT for this service.
Bear in mind, you will not be able to use the bonus as part of your exchange deposit - the money should be available before completion to go towards your property payment, but will not be available as part of the deposit, as you cannot access it before you exchange. You need to ensure you claim your bonus within 12 months of closing the account and before your completion date.
The Lifetime ISA became 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
Updated December 2022 by Jeremy Greer
For more information on the Help to Buy scheme, visit the government’s website.