The best schemes for first-time buyers

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Home ownership has long been an aspiration for many people in the UK. However, rising house prices have made it increasingly difficult for first-time buyers to get onto the property ladder. Successive governments have introduced various schemes aimed at helping first-time buyers purchase their first home.

One of the earliest schemes was the Right to Buy policy introduced in 1980. This allowed council housing tenants to buy their home at a discount. It proved extremely popular and led to a huge increase in home ownership, though it also depleted the stock of affordable council housing.

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In the early 2000s, shared ownership schemes became popular. These allow buyers to purchase a share of a property (often 25-75%) and pay rent on the remainder. The share can be increased incrementally as finances allow. Shared ownership enabled more first-time buyers to enter the market without needing a large deposit, with around 150,000 people making use of these schemes each year.

More recently, Help to Buy was launched in 2013. This government scheme provides an equity loan that effectively allows buyers to purchase a new build home with just a 5% deposit. It has increased activity in the new build sector, helping over 300,000 buyers since its launch, but has also been criticized for inflating prices and benefiting developers. New build properties and flats have benefited the most from Help to Buy.

Additionally, in 2021, the government introduced the First Homes scheme which offers homes at a discount for eligible first-time buyers.

Overall, these schemes have succeeded in their aim of increasing home ownership and helping first-time buyers get on the ladder. However, concerns remain that some schemes have also driven up prices and benefited higher earners most. There are ongoing debates around whether schemes like Help to Buy should be reformed or replaced to ensure they provide targeted support where needed.

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The first homes scheme

scheme in the UK is a government initiative aimed at helping first-time buyers and key workers (such as nurses, police officers, and teachers) to get onto the property ladder. The scheme offers newly-built homes at a significant discount, with prices capped at a maximum of 70-80% of the market value. The discount is applied to both the initial purchase and any future resale of the property.

How to check if you are eligible for the first home scheme

To be eligible for the scheme, individuals must meet the following criteria: they must be aged 18 or older, qualify as first-time buyers, and have the capacity to secure a mortgage covering at least half of the home’s price. Additionally, their annual income before tax must not exceed £80,000 (£90,000 if the property is situated in London), based on the earnings from the preceding tax year. In cases where multiple individuals are involved in the purchase:

  • All parties must be first-time buyers.
  • The application must be submitted collectively, irrespective of whether everyone is securing a mortgage.
  • The combined annual income of all parties cannot surpass £80,000 before tax (£90,000 if the property is in London). This collective income is determined by totalling the earnings of all individuals in the previous tax year.
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Check your eligibility for the first homes scheme here.

Where are most of the homes in the first home scheme located?

Those who want to buy a home that can be bought with the first homes scheme should first look at the new builds in the area as only new builds are eligible for the first homes scheme. Click here to find a map of the UK with all of the new properties at the moment.

How to apply to the first home scheme

If you’re interested in purchasing a property through the First Homes scheme, initiate contact with the developer or estate agent, especially if you are buying from a previous First Homes buyer. Inform them of your intention to participate in the scheme, and they will assess whether you meet the eligibility criteria and guide you through the application process. 

Subsequently, they will submit your application to the local council. In case the property you wish to purchase is a new build, be prepared to pay a reservation fee, which is refundable if your application is unsuccessful. Developers may also provide additional incentives, such as free goods or cash back, but these incentives should not exceed 5% of the discounted purchase price.

To facilitate the process, you’ll need to enlist the services of a conveyancer, who can be either a conveyancing solicitor or a licensed conveyancer. You can locate a suitable professional on the Law Society website for solicitors or the Council for Licensed Conveyancers website for licensed conveyancers. Reach out to your chosen conveyancer to ensure their availability to work on your behalf and to discuss their fees.

How much money do you need to qualify?

The total annual income for all involved parties must not exceed £80,000 before tax (£90,000 for properties located in London).

Help to buy ISA

A Help to Buy ISA (Individual Savings Account) was a government scheme in the United Kingdom aimed at assisting first-time homebuyers in saving for their property purchase. Here is an overview:

A Help to Buy ISA allowed eligible individuals to save money for their first home while earning a government bonus on their savings. To open a Help to Buy ISA, one needed to be a first-time buyer, meaning they had never owned a property before. The scheme allowed individuals to save up to a certain amount each month, and the government would contribute a 25% bonus on the total savings, up to a maximum bonus amount.

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How the help to buy ISA works

The funds saved in a Help to Buy ISA could only be used for the purchase of a residential property, and there were specific criteria and limitations associated with the scheme. It’s important to note that details about government schemes may change, so it’s recommended to check with official government sources or financial institutions for the most up-to-date information on Help to Buy ISAs or any related schemes.

ISA vs LISA: what’s the difference? 

An Individual Savings Account (ISA) and a Lifetime ISA (LISA) are both tax-efficient savings accounts available to UK residents. The key difference is that while an ISA is a general-purpose account that allows you to save and invest up to £20,000 per tax year, a LISA is specifically intended for saving towards a first home or retirement.

With a LISA, you can deposit up to £4,000 per tax year, and the government will add a 25% bonus on top of your contributions. This means if you put in the maximum each year, you’d receive £1,000 in bonus money. LISAs can be used to purchase a first home worth up to £450,000, or can be withdrawn tax-free once you reach age 60. However, there are penalties if you withdraw money for any other purpose.

Account Type Benefits Drawbacks
ISA
  • Tax free growth and withdrawals
  • Flexible – can withdraw at any time
  • Higher annual allowance
  • No government bonus
  • Less optimal for first time buyers
LISA
  • 25% government bonus on contributions
  • Tax free growth and withdrawals for first home/retirement
  • Lower minimum deposit needed for first home
  • Lower annual allowance
  • Penalties for other withdrawals

An ISA on the other hand, while not getting any government bonus, is more flexible. You can withdraw money at any time without penalty, and can use the funds for any purpose. ISAs also have a higher annual allowance. So they work better as an all-purpose savings and investment account. Many people have both a LISA for focused retirement or home buying goals, along with a Stocks & Shares ISA for more general investing and saving.

Can you have a help to buy ISA and a LISA at the same time?

Unfortunately, you cannot hold a Help to Buy ISA and a Lifetime ISA simultaneously. The government legislation prohibits contributing to two accounts that offer a savings bonus towards a first home purchase. However, you are allowed to transfer funds from a Help to Buy ISA into a LISA with no penalty.

So one option is to open a LISA, then consolidate your Help to Buy ISA money into it by contacting your Help to Buy ISA provider to initiate the transfer. Just be aware that once transferred, you cannot deposit back into the Help to Buy ISA again. Overall, the LISA generally offers more benefits compared to a Help to Buy ISA, so consolidating into a LISA is advisable.

How to sign up for a help to buy ISA

Signing up for a Help to Buy ISA is a fairly straightforward process. You can open one through most major banks and building societies. To get started, choose a provider and set up an appointment at your local branch. Be sure to bring your national insurance number and ID. The provider will walk you through opening the account, which involves filling out an application form and making your first deposit.

The minimum deposit is £1,600 initially, and you can contribute up to £200 per month afterward. The government will add a 25% bonus up to £3,000 on your contributions when you buy your first home. Overall, opening a Help to Buy ISA just requires choosing a provider, making an appointment, providing your info, and making your initial deposit. It’s a simple way to get started saving for your first home.

Mortgage guarantee scheme

The mortgage guarantee scheme is a government program aimed at helping people with small deposits buy their first home. 

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What is the Mortgage guarantee scheme?

Under the scheme, the government provides a guarantee to lending institutions of up to 15% of the property’s value, allowing buyers to obtain a mortgage with just a 5% deposit. The scheme makes it easier for first-time buyers and current homeowners to purchase properties priced up to £600,000.

How to check if you are eligible for the mortgage guarantee scheme

To qualify for the mortgage guarantee scheme, you must be a first-time buyer or current home-mover purchasing a property up to £600,000. Your deposit must be at least 5% of the property value. You must arrange your mortgage through a registered lender in the scheme.

Eligible applicants can be sole buyers or joint borrowers who are married, in a civil partnership, or living together. Your credit history will still be assessed by the lender and standard affordability criteria applies.

Applying for the mortgage guarantee scheme

When applying for a mortgage, ask your lender if they offer mortgages under the government scheme. They will let you know the mortgage products available and assess if you are eligible. You will still need to provide information to verify your income, savings, identity, and pass the lender’s affordability checks.

The process is similar to applying for a regular mortgage, but with the advantage of being able to put down a 5% deposit while still qualifying for competitive rates.

How much can you save using the scheme?

The mortgage guarantee scheme allows buyers to obtain a mortgage with a 5% deposit rather than the typical 10-20% required. On a £300,000 property for example, a 5% deposit would be £15,000 versus £30,000-£60,000. This smaller deposit requirement significantly reduces the upfront savings needed. Overall, the scheme can save buyers tens of thousands of pounds on their deposit amount.

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Shared ownership scheme

The shared ownership scheme allows buyers to purchase between 25-75% share in a property and pay rent on the remaining share. 

What is the shared ownership scheme?

The shared ownership scheme enables buying a share in a home at below full market value. The initial deposit and mortgage covers the portion purchased. A subsidised rent is then paid to a housing association on the unowned share. Buyers can later “staircase” and purchase bigger shares as they can afford, eventually owning 100%.

Is the shared ownership scheme the right way to access property?

Shared ownership can help first-time buyers who can’t afford a full mortgage enter the property ladder. It requires a smaller deposit and monthly costs than buying outright. It also avoids costly rent payments. However, the choice of eligible properties may be limited.

There may be ongoing service charges too. Buyers won’t fully benefit from appreciation until they own 100%. Overall it can be the right option, but buyers should weigh pros and cons vs saving longer or other affordable schemes.

What mistakes can you make with the shared ownership scheme?

If considering shared ownership, buyers should research areas well to find desirable properties. Review lease details carefully – some have restrictions on redecorating or subletting. Understand all ongoing fees beyond the mortgage, like service charges.

considering-the-shared-ownership-scheme

Seek clear answers on eventually owning 100% and timeframes/costs to staircase up. Get valuations on both share purchase price and full market value. And remember shared homes can be harder to sell fully later on. Taking time to learn the ins and outs will lead to an informed decision.

Which scheme to choose as a first time buyer?

As a first-time buyer, it’s important to weigh all the options to find the best home buying scheme for your specific situation. Consider your current finances – how much can you afford for a deposit and monthly payments? Also think about your future plans – do you want flexibility or are you committed to staying put?

Compare the deposit requirements, mortgage availability, property choices, and ownership structures across schemes like Help to Buy ISAs, shared ownership, and mortgage guarantees. Run the numbers to see the short and long term costs and benefits of each.

Think about your goals and risk tolerance. There’s no one-size-fits-all, so review all schemes thoroughly. In my opinion, the Help to Buy ISA provides a good middle ground with government bonuses, mortgage access, and flexibility.

But shared ownership can enable buying sooner for some buyers despite limitations. Evaluate your position carefully to make the right decision. The best scheme will align with your financial capability and ownership goals.

Eligibility Scheme Potential Savings
First-time buyers purchasing a new build property with 5% deposit Help to Buy Equity Loan Up to 20% of property value
First-time buyers purchasing a home priced under regional price caps First Homes 30-50% discount on market value
First-time buyers with household income under £80k Shared Ownership Buy 25-75% share, pay rent on remainder
Tenants of council or housing association homes Right to Buy 35-70% discount based on years lived there

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