Exploring Government’s Schemes for First-Time Buyers
The moment you are ready to buy your first home can be extremely exciting but there are also big decisions to be made. Even when you’re just thinking about that first move, you need to look at the different options open to you and whether there is government support to help you purchase your first home. There are a range of schemes suitable for first-time buyers and it is important to understand them properly before to see which is the best fit for your circumstances. Each has its merits and may suit your individual circumstances and we’re looking more thoroughly at the different options to consider below.
Help to Buy Scheme
The government’s Help to Buy scheme has gained a lot of media attention since its launch and it is a popular way of getting onto the property ladder. It aims to help first-time buyers take that first exciting step into property ownership and works as a form of equity loan.
The government will provide a loan of up to 20% of the cost of your chosen home, allowing you to work on raising just a 5% deposit. A 75% mortgage will make up the rest of the property purchase and as your government equity loan counts as part of your deposit, it may be easier to get a mortgage. It also allows you to avoid taking out a hugely expensive 95% mortgage.
There are different rules in place for London, where first-time buyers can access a Help to Buy loan of up to 40% to reflect the increased property prices in the city.
Eligibility for the Help to Buy Scheme includes several factors:
You must be over 18 years old
You must have a 5% deposit available
You must be able to take out a mortgage for at least 25% of the full property price
You must be able to provide proof you can afford the mortgage repayments and outgoings for your potential new home
You are not already a homeowner or will have sold your current home before or by the completion point of the Help to Buy property
Another key thing to remember is that Help to Buy loans are only available on specific developments where Home England have a registration agreement in place with the builders. The loans are only available for new build properties valued at under £600,000.
Lifetime ISAs
Lifetime ISAs are one of the most tax efficient ways of saving, making them popular with first-time buyers. The government supported scheme sees them contributing £1 for every £4 you save, allowing you to gain up to a maximum of £1,000 a year from the government’s contributions. The bonus is added at the end of each financial year and you can then earn interest on your bonus cash. There are some rules attached which you may want to keep in mind when considering this payment method including:
You must be over 18 and under 40 when you open your lifetime ISA
Bonus payments are only made until you reach the age of 50
Money can be used to buy a first home at any time, or it has to remain in the account until you are over 60
You can make payments into your ISA account until you turn 50
The scheme currently allows you to save a maximum of £128,000 from 18 to 40 and the government contributions will add another £32,000. This is if you utilise the whole length of the ISA but you are not obliged to do so. Withdrawing money from the ISA for any other purpose than buying your first home, or once you reach over 60, will incur a 25% charge so it is something you’ll want to consider carefully.
Shared Ownership
Shared ownership schemes allow you to own up to three-quarters of your chosen property in the first instance. You can buy between 25% and 75% initially with the option to buy a bigger share available at a later date in most instances. They are a great way of getting your foot on the ladder when you can’t afford to buy a home outright.
Shared ownership eligibility depends on where in the United Kingdom you live. In England eligibility criteria include:
People who rent council or housing association property
First-time buyers or former homeowners who can’t afford one outright now
People who have a combined household income of less than £80,000
Military personnel are given priority over other applicants in this scheme and there is also a further specialised Older People’s Shared Ownership Scheme for anyone aged over 55.
Anyone interested in these kinds of schemes can find out more via their local Help to Buy agents. The Housing team in your area should be able to let you know if it is available and whether you are eligible. You will also need to find a mortgage lender who will give you a mortgage for this type of scheme, not all are willing to offer loans on shared ownership properties.
First Homes Discount
This flagship programme from the government was initially announced in February 2020 and will be rolled out in 2021. First-time buyers will be given the chance to buy a new build property with a 30% discount, which equates to an average saving of close to £100,000.
The First Homes Discount scheme will allow buyers to not only pay less for their homes as a whole, they’ll also need to raise a lower amount of deposit, which may make it easier to save and meet the affordability requirements of mortgage providers. The other important thing to remember about this scheme is that the discount is locked into your property so as and when you decide to move, the house will have to be sold with a 30% discount on its market value.
The government wants this scheme to help in high demand areas and specifically help keyworkers, such as nurses, police officers and teachers, as well as military veterans. The scheme will be open to people from other backgrounds, but this is the initial focus. So far there is no roll-out date for this scheme, but it will be surely popular once it is launched.
There are a range of government schemes to support potential homeowners, whatever their circumstances might be. This ensures that as many people as possible are able to find and purchase their dream home in an affordable way.