If you’re a first-time buyer, there are a number of options that could get you on the housing ladder faster, if saving for a traditional 10-15% deposit is going to take a while.
Below, we’ve outlined three major incentives that could help you find your own place quicker than you first thought. We’ve also explained how some of these are changing in 2021, so you know exactly where you stand.
Help to Buy
The UK Government’s Help to Buy scheme provides an equity loan of 20%. When you combine this with a 5% deposit, you can offer a 25% deposit on a new-build property registered on the scheme and take out a 75% mortgage.
In 2021, some of the criteria have changed:
- There are now regional price limits, so you can only use Help to Buy to purchase a home up to 1.5 times the value of the average first-time buyer purchase in your region.
- Rules for housebuilders wanting to register onto the scheme are now stricter.
- The eligibility criteria for the scheme have changed.
What Are The New Eligibility Criteria For Help to Buy?
- You must be a first-time buyer (previously, the scheme was open to anyone who did not own property at the time of application).
- If you’re making a joint application, you both need to be first-time buyers.
- There are now no upper or lower income brackets.
It’s important to note that in Wales there are some differences in how the . The maximum purchase price is £250,000 across the country, and the scheme is not restricted to first-time buyers.
ISAs for First-Time Buyers
If you’re saving for a deposit, ISAs can help you get more out of the money you put in.
Your options here include:
- Help to Buy ISAs: the Government provides a 25% deposit on all savings up to £12,000, which is redeemed against the cost of the mortgage.
- Lifetime ISAs: the Government provides a 25% cash bonus on deposits of £4000 per year, with no upper limit. You can only withdraw the money to buy a home or retire.
You can no longer open a new Help to Buy ISA as the Government closed the scheme in 2019. However, if you have one open already, you can continue to put money in it until 2029 (and the Government will honour the bonus payout).
Arguably, Lifetime ISAs are a better deal if your main issue is saving up for a deposit, because:
- Lifetime ISAs have no upper limit on the amount of bonus you receive.
- £3,000 off your mortgage isn’t noticeable in the long term, whereas 25% towards your deposit gives you an immediate boost.
If you have less than £4,000 in a Help to Buy it might be worth considering transferring.
That said, there are things to be aware of when opening a Lifetime ISA. If you withdraw money within the first year for any reason, or for purposes other than buying your first home or retirement (when you’re 60 years old or over), you’ll face a 20% withdrawal charge (25% from April 2021). This could leave you with less than you paid in initially.
New 5% Mortgage Deposits
In 2021’s Spring Budget, Chancellor Rishi Sunak announced a scheme to encourage lenders to offer low deposit mortgages based on the UK Government guaranteeing outstanding loans. This means that you could buy a house with a 5% deposit, with 95% of the purchase price covered by your mortgage.
Many lenders have erred away from 95% mortgages because they consider them a risk. By promising to shoulder some of the cost if a lender loses money on a 95% mortgage (for example, if borrowers fail to make monthly payments or if the property ends up in negative equity), the Government hopes to encourage more lenders into the low-deposit lending market.
The scheme starts in April 2021 and will run until December 2022. It is open to anyone (not just first-time buyers) wishing to purchase a property up to the value of £600,000. Major lenders onboard include HSBC, Santander, Barclays and NatWest, with more set to follow.
As far as buyers are concerned, there is no difference between a 95% mortgage from a lender participating in the scheme and one from a lender not participating in the scheme. Having a 5% deposit is just one of the criteria buyers will need to meet – anyone applying for a 95% mortgage protected under this scheme will also have to meet all the usual affordability criteria and assessments.
Shared Ownership allows those with incomes of £16,000 to £45,000 (and sometimes up to £60,000) to purchase a share of their house whilst paying rent on the rest, with the option of purchasing a greater share in the future.
You can use Shared Ownership to buy a new-build registered on the scheme, or to purchase an existing home via a resale programme run by a housing association.
In 2021, the Government has announced some changes to how shared ownership works. These include:
- A reduction of the minimum share value from 25% to 10%
- The ability to buy shares in 1% increments for flexibility (previously the minimum was 10%)
- An initial 10 year period in which the landlord or housing association (all Shared Ownership properties are leasehold) will cover the cost of repairs and maintenance
When buying your first home, it’s important to get objective and impartial financial advice, no matter which route you choose to go down.
As a mortgage is secured against your property, it may be repossessed if you do not keep up the mortgage repayments.