What and where are the best options for first-time home buyers?
With the property market seeing so many changes, with house prices rising radically over the past ten years and more, it seems a far greater challenge for many young buyers to get a foot on the property ladder. It can be confusing; it's not always easy to get your head around equity loans or the mortgage guarantee scheme, or their eligibility criteria, just to take that first step onto the property ladder with a mortgage deal you're comfortable with.
However, it’s not the lost cause it often appears to be at first glance. Many niche lenders are happy to work with new buyers, and several government-based schemes are available to help them get the helping hand they need. These are some of the best deals for first-time home buyers and are well worth looking into.
When it comes to finding the right mortgage, a reliable mortgage broker is almost always the best option for first-time home buyers to find out what’s out there, outlining who’s offering the best rates for their age and LTV. However, if you need a little help on top, these government schemes can make all the difference.
Government schemes for first-time home buyers
Lifetime Individual Savings Account (LISA)
For homes under £450k and borrowers between 18 and 39 years old, this savings scheme offers a helping financial hand for anyone taking out an account before they hit forty.
LISA holders can save up to £4k per year until they’re 50, and the government adds a 25% bonus to their savings (that’s £1,000 per year).
For two LISA holders saving for the same mortgage application in separate accounts, the scheme delivers an additional £2k each year towards their deposit.
The drawbacks are that the money must be used as a mortgage deposit and withdrawn before the applicant reaches 60 years old.
Notes on the previous Help to Buy ISA – The Help to Buy ISA scheme stopped accepting applicants in 2019, but those who already hold one can continue their investment plans until November 2029.
Help to Buy: Equity Loan
This equity loan scheme helps the first-time buyer buy a new-build home as long as the property value is within the regional price cap. The property must be their primary residence, and they need to provide a 5% deposit, but the scheme allows them to borrow up to 20% of the property price as an interest-free equity loan. The percentage jumps to 40% when buying in London.
There’s no interest to pay for the first five years, yet when you start to pay, you’ll only be paying interest and nothing off the loan amount.
Unfortunately, this version of the Equity Loan Scheme scheme is only for first-time buyers in England.
Help to Buy: Wales
Similar to the England option, Help to Buy – Wales provides a shared equity loan of up to 20% of the property's price with a repayment mortgage covering the remainder. Again, buyers must put down a 5% deposit.
Not necessarily available in all areas of Wales, and where it isn’t, it will be subject to local criteria. This option provides an equity loan to help buy an existing property instead of a new build, allowing first-time buyers access to more affordable properties.
Right to Buy and Right to Acquire
Currently only available in England and Northern Ireland, some council house and housing association tenants have the option to buy their homes at a discounted price.
In England, the discounted rate is 20% for those who’ve lived in the property for five years. After that, there's an extra 2% for each additional year, up to a maximum of 60% or £24,000.
If you don’t qualify for the Right to Buy scheme in England, you may still be entitled to a smaller discount under the Right to Acquire scheme.
Shared Ownership is slightly different to the Right to Buy scheme, where the tenant can buy a share of the property from the landlord and pay rent on the remainder. The landlord is typically the council or a housing association.
As they pay their mortgage on the newly acquired share, the rent on the remainder will be at a reduced rate. The tenant can continue to buy further shares in their rented or housing association property until they own it outright.
In Northern Ireland, Wales, and Scotland, there are similar schemes aimed at first-time buyers and home movers on low incomes.
Home Ownership for People with Long-term Disabilities (HOLD)
Another shared ownership scheme, but this time for buyers with long-term disabilities. Only available in England so far, HOLD is available where existing schemes don’t meet their needs. Military personnel are prioritised over other groups, yet local councils may offer special entitlements depending on particular housing needs.
Older People’s Shared Ownership
This scheme works as the general Shared Ownership but for the over 55s only, with a cap on the share amount of 75%. However, once they achieve the 75% share, they won’t pay any rent on the remaining share of the property.
Help from the family for a first-time buyer
There are numerous fixed and variable rate options, tracker, and offset mortgages with lower rates, especially to entice first-time buyers. However, further opportunities are available where parents or family members can step in to help those struggling to find a deposit or approval for their first mortgage.
Family assist mortgages
Accepting a helping hand from family members has become a popular way to help first-time buyers to get their foot on the housing ladder. Whether that means accepting a ‘gifted deposit’ to achieve the required LTV, setting up a joint mortgage with parents or having them act as a guarantor are all ways to make a mortgage possible or achieve preferable interest rates.
The best advice for first-time buyers
The best place for first-time home buyers to find out which mortgages apply to them is with a mortgage broker. Mortgage brokers know the industry inside-out and have access to all kinds of offers and opportunities, and aren’t limited to those of the mainstream lenders and high-street banks.
CLS can point you towards the best bank or mortgage lenders for first-time home buyers in your position, yet better still, if there are alternatives that offer better options, savings, and lower mortgage payments—we'll make sure you know about them. We offer independent mortgage advice, help you with all the paperwork, and we'll even talk to your estate agents if you need us to. Give us a call today, and we’ll talk you through all of your options as a first-time buyer.