Let’s face it, buying a home for the first time is not easy. The main stumbling block being the financial outlay for the deposit, stamp duty (if applicable), solicitor’s fees, moving fees and then also buying everything that is needed to furnish your new home. Most first-time buyers do not have large savings and do not have equity in an existing property to help fund a new home. It isn’t all doom and gloom, though as there is plenty of help out there, in this article we take a look at all the current options available for first time buyers.
Shared Ownership
Under the Shared Ownership Government backed scheme the buyer purchases anything from 10% to 75% of the property and a 3rd party buys the remaining portion. This allows a buyer share ownership of the property and take out a smaller mortgage with a smaller deposit. Over time the buyer can purchase more of the property until they reach 100% ownership. In the meantime, they pay rent on the portion of the property owned by the co-owner.
Lifetime ISA
The lifetime ISA scheme is a savings incentive. Those aged between 18 to 40 can open an ISA account and save a maximum of £4,000 a year into the scheme. At the end of the year the Government will add a further 25% of the value saved. So, the maximum amount that can be saved per year is £5,000 including the incentive. The saved money can then be used towards the deposit on a house.
First Homes Scheme
Under this Government backed scheme a buyer can buy a new property from a developer or an existing property from someone who originally bought the property under the scheme for 30% to 50% less than the normal market value up to a property value of £250,000 or £420,000 in London. Open to those whose household incomes are less than £80,000 per annum (£90,000 in London) the scheme aims to prioritise key workers and locals. The property can then only be sold under the same scheme to those eligible to apply for such a property.
Mortgage Guarantee Scheme
This scheme is designed to incentivise lenders to lend on high loan to value mortgages such as 95% LTV. During the pandemic and in the immediate aftermath, many high street lenders removed their 95% mortgages and the Government decided to underwrite a portion of any default as an insurance package to incentivise lenders to reintroduce 95% mortgages. As such the Government gives the lenders an insurance policy which covers any default on mortgage payments down to 80% of the of the purchase value. With more high LTV mortgages it is easier for first time buyers to afford the deposits and get a mortgage.
Rent to Buy Scheme
Another Government backed scheme, but this time aimed at those in rental accommodation. The landlord will need to register with the scheme and approved properties can be found using the links on the Government website. Renters, if eligible can then rent the property for up to 20% less than market rates allowing them to put money aside for a deposit. Renters will need to commit to 2 years in the property as a minimum and after that time, the landlord can agree an extension to the scheme or put rent up to normal rates.
Gradual Ownership scheme
This is a scheme run by a lender so not Government backed. The scheme allows anyone to buy a property with a 5% down payment and no mortgage. The scheme provider Wayhome purchase the remaining share. The buyer then pays a fair market rent on the share that the scheme provider buys. The buyer can purchase more of the property up to a 40% share and then to purchase the remainder they would need to buy out the full 100%. The property is deemed to be the property of the buyer and they can decorate the property as they wish. Things like structural changes are not allowed though, without permission from the scheme provider. This scheme allows someone to buy a property with a low down payment and no mortgage whilst still ending up owning the property.
Help-To-Buy
We had to cover this as everyone has heard of help-to-Buy, which is the Government backed equity loan scheme. Unfortunately, this scheme is no longer open in England for new applications.
Deposit Unlock Scheme
The Deposit unlock scheme is run by lenders and property developers. The scheme allows people to buy a new build property with only a 5% deposit. This is to help bridge the gap now that the help-to-buy scheme has ended. Often, without schemes like this, lenders will not lend high LTV amounts on new build properties and tend to ask for 20% – 25% deposits. Under this scheme a 5% deposit is accepted and the developer pays to insure the risk.
Joint Borrower Sole Proprietor scheme
This is a mortgage type where there are several borrowers on a mortgage but only one person “owns” the property and only that person will be named on the title deed. So, the other borrowers have no financial stake in the property at all despite the fact that they pay towards to loan repayments. Joint borrowers will need to all pass the affordability checks but, typically a more expensive property can be purchased as everyone’s salary counts towards the lending multiple. This product is great for parents who are happy to help with mortgage payments or at least help in the affordability checks so that a first time buyer can get a mortgage.
Guarantor mortgages
These types of mortgages are where a buyer has their mortgage guaranteed by someone else, such as a close relative. That person then signs that they can afford to make any repayments and that they will assume responsibility for payments is the main mortgage holder defaults. These are great for those who might not pass an affordability check but could afford the payments or those with a low or no credit score.
Being a first time buyer can be hard, especially given rising inflation and higher interest rates on mortgages. The housing market and the Government have recognised this and there is a lot of help out there to help first time buyers get on to the property market. In all instances, it is recommended that you obtain independent financial advice to help ascertain if each of these schemes is right for you.
