It can be difficult to purchase your first home, especially in areas with high property prices. Fortunately, there are various ways you can overcome this challenge. One option is to use government schemes specifically designed for first time buyers. These schemes can make the process of buying a property easier. We have outlined some schemes available to first-time buyers to help you achieve your dream of owning a home.

Get saving for a deposit

Saving a bigger deposit can make it easier to buy a property and provide more mortgage options. Some lenders offer 100% mortgages but require parents to keep a percentage of the purchase price in a separate savings account.

If you’re having difficulty saving, list all your expenses and identify any non-essential ones you can eliminate. Lenders give better interest rates to individuals who can provide larger down payments, meaning your monthly mortgage payments will likely be less expensive as you save more.

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The mortgage guarantee scheme

The March 2021 Budget introduced the mortgage guarantee scheme, which intends to assist first-time homebuyers and those who have saved a 5% deposit but require extra support in purchasing their first property.

With a 5% deposit, buyers can purchase a property that costs £600,000 or less. The government will guarantee the mortgages offered, implying that the lender’s losses will be partially covered if the property is repossessed or sold for less than the outstanding mortgage value.

The scheme will be in operation from April 2021 till December 2022. As per the scheme’s terms, lenders must provide a product that includes a fixed rate for five years to assist buyers in maintaining a steady budget.

The current mortgage guarantee scheme is similar to the Help to Buy mortgage guarantee scheme that ended in 2016.

Right to Buy

I am referring to the scheme called the Right to Buy mortgage. It allows council tenants who live in England to purchase their council home with a discount.

How does it work?

The Right to Buy scheme discounts tenants who wish to purchase their home. The maximum discount you can receive is £84,200 in England or £112,300 in London. The amount increases each year to match inflation (CPI). The value of the discount depends on factors such as the property’s value, type (e.g. flat or house), and how long you’ve been a tenant.

Who’s it for?

You can only qualify if you have been living in a council property that is self-contained and is your primary residence or the only home you have had for at least three years. Additionally, your landlord must be a public sector landlord, such as a council or housing association.

Advantages of Right to Buy

• We offer a discount on the property’s market value to assist you in purchasing the property at a more reasonable price.

• You can sell your home without repaying the discount after 5 years.

Disadvantages of Right to Buy

• When purchasing a flat, you must pay a service charge to the council or housing association to cover maintenance fees for the building.

• Once you become a property owner, you will no longer be eligible for housing benefit.

Shared Ownership

You can purchase a portion of a property from a council or housing association through Shared Ownership schemes. Afterwards, you can pay rent for the remaining part and even choose to buy a larger share later on.

How does shared ownership work?

It is possible to purchase an initial share of a property ranging from 25% to 75% of its total value. Later on, if you wish to, you can buy more shares, referred to as staircasing, until you have acquired 100% ownership of the property.

Who’s it for?

If you live outside London, your household earning should not exceed £80,000 per year to be eligible for Shared Ownership. However, the limit is £90,000 per year if you reside in London.

Advantages of shared ownership

• You must make a smaller deposit since you buy only a portion, not the entire property.

• The scheme aims to assist individuals who cannot afford to purchase a property outright to make homeownership more attainable.

Disadvantages of shared ownership

• When you sell the property, you will only make a profit on the part of the property that you own. The rest of the profit will go to the housing association or council.

• If a loss occurs, it will be divided between you and the council or housing association based on the proportion of shares you own.

Co-ownership in Northern Ireland

In Northern Ireland, co-ownership functions similarly to Shared Ownership in England. This means that first-time buyers can buy a portion of a property and pay rent on the remaining amount they do not own.

How does Co-ownership in Northern Ireland work?

To purchase a property through the Northern Ireland Co-ownership Housing Association (NICHA), you can buy a minimum share of 50% or a maximum share of 90% if you can afford it. You will have a mortgage on the portion you own and need to pay rent on the other part to NICHA. The cost of the property you intend to buy cannot exceed £165,000.

Who’s it for?

To be eligible for first-time buyer status in Northern Ireland, you must be over 18 years old and not own any other properties. The property you want to purchase cannot be a housing association property.

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Advantages of co-ownership in Northern Ireland

• The scheme aims to increase affordability for individuals who cannot purchase a house outright by enabling them to own a property.

• Since you purchase only a portion of the property, the required deposit amount will be smaller.

Disadvantages of Co-ownership in Northern Ireland

• You can only qualify for co-ownership if you would not have been able to purchase a property without implementing this scheme.

• As the property owner, you are responsible for all repairs that need to be done.

Borrow from Parents

If your family is willing to give you financial assistance, they can help you in different ways. They can loan you your deposit or act as your guarantor. Alternatively, they could co-sign a mortgage with you. Certain types of mortgages are tailored for parental support, allowing you to use the equity in your parent’s home as extra security.

If parents decide to jointly own a property with their already owned home, they should remember that this may result in a capital gains tax (CGT) and extra stamp duty charges on the new property.

Frequently Asked Questions

Saving a bigger deposit can make it easier for you to buy a property and give you more options for mortgages. If you’re having trouble saving, make a list of your expenses and see if there are any non-essential items you can cut back on. Lenders give better rates to people with larger deposits, meaning the more you save, the lower your monthly mortgage payments will be.

The March 2021 Budget announced the mortgage guarantee scheme to assist first time buyers and home movers with a 5% deposit who require additional support to purchase a property and enter the property market. With this scheme, buyers may acquire a property up to £600,000 with their 5% deposit while the Government guarantees the mortgages provided. This guarantee ensures that if the property is repossessed or sold for an amount less than the outstanding mortgage value, some of the lender’s losses will be compensated.

In England, council tenants have the opportunity to purchase their council home at a reduced price through the Right to Buy mortgage scheme. You can receive a discount on your home’s market value of up to £84,200 (or up to £112,300 if you live in London). This amount increases annually to match inflation as measured by the Consumer Prices Index (CPI).

It’s a difficult time to get onto the property ladder without any advice, guidance or external help. The past few years have seen a lot of changes that have had a significant impact on the housing market, making it more difficult for buyers to get a mortgage and afford deposits for a house.1

Over the past couple of years, and even more so as a result of the pandemic, an increasing number of lenders have ended mortgage offers for borrowers with a 5% or 10% deposit. 1

Another factor that’s made it difficult for people to buy their first home is the tougher caps on mortgage thresholds, making mortgages a lot trickier to come by. When you apply for a mortgage, how much you’ll be able to borrow is usually capped at a multiple of your annual earnings. However, these mortgage thresholds have been capped at a lower value from a number of lenders due to the pandemic’s impact on the housing market. 1

High rents mean savings are being spent every month on the cost of rented properties rather than deposits for a dream house or flat. People can’t even start to think about putting in an offer for a home when monthly rent fees are draining most of their savings. 1

There are plenty of schemes and funding out there to help cover some of the costs such as Help to Buy ISA which was specifically designed to help first time buyers save up a deposit. 1

The Help to Buy Individual Savings Account was specifically designed to help first time buyers save up a deposit. You could initially pay up to £1,200 into this type of savings account then up to a monthly sum of £200 for following months. With a Help to Buy ISA, the government will add 25% to any money you put into account. 1

You can get loan for up 20% (40% in London) of purchase price of new-build home. You borrow rest from mortgage lender but should be able get better deals as have larger deposit. You need at least 5% deposit and there are regional limits on sale price homes can buy. 2

References:

  1. How to get on the property ladder – Wayhome. https://www.wayhome.co.uk/blog/how-to-get-on-the-property-ladder
  2. How to get onto the property ladder | GoCompare. https://www.gocompare.com/mortgages/how-to-get-onto-property-ladder
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