What Schemes Are Available to Help First Time Buyers?

The Big Three: House prices; Interest rates; and, Deposits.

The number of UK first-time buyers dropped by 11% in 2022 and the average deposit requirement increased to almost £62,500. In addition, average property values for first-time buyers grew to around 7.6 times the average UK salary and the average two-year fixed mortgage rate has nearly doubled from 2.85% to 5.35% in the past year.

The Help to Buy scheme has recently ended, making it harder for first-time buyers with smaller deposits to buy. Under the scheme, the Government provided a 20% loan (40% in London) that was interest-free for five years and allowed buyers to get on the housing ladder with just a 5% deposit. So, how can first-time buyers in England navigate the journey of buying a house and take steps to try to mitigate any negative financial impact of the process?

There are several available schemes, as stated on Own Your Home, and in my view, these aren’t talked about enough.

Whilst these schemes are available, it is important to take the time to understand the eligibility criteria of each scheme and what the terms of the schemes are.

Stamp Duty Land Tax (SDLT) Relief

Benefit: Stamp Duty Land Tax relief for people buying their first home.

Requirements: Purchases of residential property of £500,000 or less by first time buyers.

SDLT is a tax to pay if you buy a property in England or Northern Ireland and different rates are charged on the portion of a property’s value within price bands. First-time buyers are eligible for a stamp duty relief if they purchase a property of £500,000 or less that they intend to use as their main residence. First-time buyers who buy a property between £300,000 and £500,000 pay SDLT at a rate of 5% on the amount above £300,000.

The Mortgage Guarantee Scheme

Deposit needed: 5% deposit

Requirements: Available from participating lenders across UK on properties with a purchase price of £600,000 or less, where a borrower has a deposit of 5%. Available to first time buyers and existing homeowners who are looking to move and require a 95% Loan-To-Value mortgage.

In the event of a repossession, the guarantee compensates mortgage lenders for a portion of net losses suffered. The guarantee applies down to 80% of the purchase value of the guaranteed property covering 95% of these net losses. The lender therefore retains a 5% risk in the portion of losses covered by the guarantee. This ensures that the lender retains some risk in every loan.

First Homes

Deposit required: Normally at least 5% of the discounted purchase price, depending on the property and on mortgage eligibility from participating mortgage lenders.

Ownership: Full Ownership

Benefits: Homes discounted by at least 30% compared to market prices, making deposits and mortgage repayments significantly cheaper.

Requirements: First-time buyer, earning less than £80,000 per year (£90,000 in London), or a lower figure if set by the council.
Mortgage to cover at least 50% of purchase price. Councils can apply additional eligibility criteria, such as restricting the scheme to key workers or people with a local connection.

Overview

First Homes is designed to help local first-time buyers and key workers onto the property ladder by offering homes at a discount of at least 30% compared to the market price. In some areas the discount could be as high as 50%.

The discounts will always apply to the homes, so generations of new buyers and the local community will continue to benefit each time the property is sold.

Eligibility

• Purchasers of First Homes must be first-time buyers and must have a household income not exceeding £80,000 and £90,000 in London (or lower if set by the local authority)
• Post-discount price caps on first sale of the property of £250,000 across England and £420,000 in London (or lower if set by the local authority)
• A First Home should be the buyer’s only home and a purchaser will need to use a mortgage or home purchase plan for at least 50% of the purchase price of the home
• Local connections and/or key worker status as determined by the relevant local authority
• First Home properties should, in time, be available throughout England.
• A programme is underway to deliver up to 1,500 First Homes in up to 100 locations across England, and this is due to conclude in September 2023.

What you can do

Start by determining whether the developer is offering the scheme in the development that you want to buy. First Homes accepts qualified applicants with no application deadline whenever there are plots available. When you are ready to reserve a plot under the scheme, you will then apply to have your eligibility validated.

Shared Ownership

Deposit: The size of your deposit will be determined by your mortgage provider’s terms and conditions, but it will typically range from 5% to 25% of the value of your share.

Ownership: A leasehold interest worth between 10%-75% of the home’s value (local conditions may apply)

Benefits: Enables people to get on the housing ladder with a smaller mortgage and deposit.

Requirements: A gross annual household income of £80,000 or less when buying outside of London, and £90,000 or less when buying in London.

Overview

If you can’t afford all of the deposit and mortgage payments for a home that meets your needs, Shared Ownership offers you the chance to buy an initial share of a home worth between 10% and 75% of its market value. You will pay rent to the housing provider on the rest. You can buy more shares in your home in the future, as and when you can afford to do so. This is known as ‘staircasing’. If you buy more shares, you’ll pay less rent. The amount of rent you pay will be based on the size of the share of the home you have not bought.

Eligibility

You could buy a home through Shared Ownership in England if:

• Your household earns £80,000 a year or less when you’re buying outside of London, or £90,000 a year or less when you’re buying in London
• You are a first-time buyer, you used to own a home but can’t afford to buy one now or are an existing shared owner looking to move.
• Through housing organisations’ resale programs, you can purchase a newly developed home or an existing one with shared ownership. To cover your share of the home’s purchasing price, you’ll need to either obtain a mortgage or use your savings. All properties in shared ownership are leasehold.

Right to Buy

Benefit: Council tenants are offered a discount of up to £96,010 (£127,940 in London) to help buy the home they are renting.

Requirements: Must be a secure tenant and been a public sector tenant for at least 3 years.

Overview

The Right to Buy scheme helps eligible council and housing association tenants in England to buy their home with a discount of up to £127,940 (£96,010 outside London). The government’s Right to Buy Agent service also offers free and impartial advice on Right to Buy.

Help to Build: Equity Loan

Ownership: Full ownership.

Benefit: A government equity loan to help fund your custom or self-build home.

Requirements: 18 years of age or over, and have a right to live in England, will live in the newly-built home as your only home and secure a self-build mortgage from a lender registered with Help to Build.

Overview

Help to Build is a government equity loan that is available to people in England who want to custom build or self-build their own home and is available to those with a small deposit.

A custom build or self-build home means that you can decide on the:

• Design – building in features that suit your lifestyle, such as energy efficiency and smart technology
• Internal layout – designing a home that will suit your family’s specific needs
• Location – homes can often be the size and scale you want, built on smaller plots of land available for development in the area you want to live.
• The equity loan amount can be between 5% to 20% (up to 40% in London) of the total estimated cost.

If you’re eligible, you can spend up to £600,000 on your new home. This must include the cost of the land if you don’t already own it, and no more than £400,000 on the cost to build it.

You can apply for Help to Build if you:

• Are 18 years of age or over, and have a right to live in England. Will live in the newly-built home as your only home
• Secure a self-build mortgage from a lender registered with Help to Build
• How long is the scheme open for?

Help to Build funding is available for 4 years. If demand is higher than expected, funding may become unavailable sooner.

How long will the process take?

If you accept the offer of an equity loan from Help to Build, you’ll have 3 years to buy the land (if needed) and build your home.

Right to Shared Ownership

Deposit required: The size of your deposit will be determined by your mortgage provider’s terms and conditions, but it will typically range from 5% to 25% of the value of your share.

Ownership: A leasehold interest worth between 10%-75% of your home’s market value.

Benefits: Enables people to get on the housing ladder with a smaller mortgage and deposit.

Requirements: You must meet all of the Right to Shared Ownership’s eligibility criteria. Your home must also be eligible. To find out if your home is eligible, please contact your landlord.

Overview

If you are a tenant of a home for Social Rent or Affordable Rent, the Right to Shared Ownership offers you the chance to buy an initial share in your current home worth between 10% and 75% of its market value on Shared Ownership terms. You will pay rent to your landlord on the rest. You can buy more shares in your home in future, as and when you can afford to do so. This is known as ‘staircasing’. If you buy more shares, you’ll pay less rent. The amount of rent you pay will be based on the size of the share in your home you have not bought.

Eligibility

To be eligible for the Right to Shared Ownership, you must be the tenant of a housing association (or tenant of another Registered Provider of social housing that is not a local authority, co-operative housing association, or Community Land Trust). The Right to Shared Ownership does not apply to homes in remote rural areas, or specialist homes for older people or people with disabilities.

Although they cannot be accessed through the Right to Shared Ownership, specialist homes for older people or people with disabilities are available on Shared Ownership terms through the Older Persons Shared Ownership (OPSO) and Home Ownership for People with Long-Term Disabilities (HOLD) schemes.

To be eligible for the Right to Shared Ownership, you must also:

• Have lived in your current home for at least 12 months
• Have been a tenant of social and/or affordable housing for at least three years (this need not be for three years consecutively or with the same landlord)
• Satisfy all of the usual eligibility criteria for the Shared Ownership scheme, including its income threshold (a gross annual household income of £80,000 or less when buying outside of London, and £90,000 or less when buying in London).
• A full list of eligibility criteria can be found on the Right to Shared Ownership application form.

Home Ownership for People with Long-Term Disabilities (HOLD)

Ownership: Between 10-75% of the home’s value

Overview

If you have a long-term disability and you are unable to buy a home in another Shared Ownership scheme that meets your needs, HOLD offers you the chance to buy a home on the open market on Shared Ownership terms.

HOLD operates on the same basis as Shared Ownership. As a result, you can buy an initial share of a home worth between 10% and 75% of its market value. You will pay rent to the housing provider on the rest.

You can buy more shares in your home in the future, as and when you can afford to do so. This is known as ‘staircasing’. If you buy more shares, you’ll pay less rent. The amount of rent you pay will be based on the landlord’s share.

Eligibility

You may be able to buy a home through HOLD if you have a long-term disability and meet the following criteria:

• Your gross annual household income is £80,000 or less outside London, or £90,000 or less in London
• You are a first-time buyer, you used to own a home but can’t afford to buy one now or are an existing shared owner looking to move
• You have a long-term disability as classified under the Equality Act
• You are 18 years old or older (or within 6 months of turning 18) there is no upper age limit
• You have access to funds to cover legal costs and a deposit of between £15,000-£20,000
• You want to live in an area where HOLD is provided
  

Right to Buy: Preserved Right to Buy

Benefits: Eligible tenants are offered a discount of up to £96,010 (£127,940 in London) to help buy the home they are renting.

Requirements: If you were a secure council tenant and were living in your home when it was transferred from your council to another landlord, then you may have a Preserved Right to Buy.

Overview

If you’re a housing association tenant in England the Preserved Right to Buy scheme could help you buy the home you currently live in with a discount of up to £96,010 (£127,940 in London).

Eligibility

• You could be eligible if you were a secure council tenant and you were living in your home when it was transferred from the council to another landlord, like a housing association.
• You could also be eligible if you then moved to another home owned by the new landlord. But not if you moved to a home owned by a different landlord.
• Your landlord will be able to tell you whether you have the Preserved Right to Buy. If you’re a housing association tenant and you’re not eligible for this scheme, you may be eligible for the Right to Acquire scheme instead.
• The government has plans to extend the Right to Buy to more housing association tenants. The government will evaluate new pilot areas for the extension known as Voluntary Right to Buy. More details will be announced in due course.

Find out if you could be eligible for the Preserved Right to Buy, what discount you might get and whether you can afford to buy – and how to take the next steps if you decide to apply.

Lifetime ISA (LISA)

Deposit required: A minimum payment of £1 required to qualify the account as ‘open’

Benefits: The government will contribute 25% on up to £4000 saved in a LISA account every year – that is a Government top up of up to £1000 each year.

Requirements:  First time buyer aged 18-39 purchasing a first home up to the value of £450k.

Overview

The Lifetime ISA (LISA) is a long-term savings product intended to support younger people saving for their first home, or for later life. Up to £4,000 can be saved each year, attracting a government bonus of 25% on each new payment. Funds can be withdrawn without charge 12 months after opening the LISA, if used as a deposit for the account holder’s first home, subject to certain conditions.

Forces Help to Buy

Benefits: Interest free advance of pay repayable over 10 years.

Requirements: Regular service and completed 12 months service from date of enlistment and completion of Phase One Training.

Overview

The Forces Help to Buy scheme allows Regular Serving Personnel to borrow up to 50% of their annual salary to a maximum of £25,000, interest free. This advance may contribute towards a deposit for owning your own home, solicitor’s and estate agent’s fees, and in some extenuating cases to adapt a current property as your family’s needs change.

All regular service personnel are eligible who:

• Have completed the pre-requisite length of service
• Are not a reservist or member of the Military Provost Guard Service
• Have more than 6 months left to serve at the time they apply
• Meet the right medical categories.
• There may be instances where exceptions to the standard rules may be justifiable, especially where you have extenuating medical and personal circumstances.

Service Personnel can apply for Force Help to Buy one the Joint Personnel Administration (JPA) portal, through the self-service application. Full instructions are on the JPA portal in the Self-Service User Guide: Applying for Pre-Approval for Forces Help to Buy document.

Other government-backed housing schemes can be used together with Forces Help to Buy.

Rent to Buy

Ownership: Either 100% or on Shared Ownership terms

Benefits: Tenants are offered an intermediate rent (up to 80% of the market rate), for a minimum of five years, to provide them with an opportunity to save for a deposit to buy their first home.

Requirements: First-time buyer

Overview

Rent to Buy is typically offered by housing associations. The scheme offers working households the chance to rent a home at Intermediate Rent providing them with the opportunity to save for a deposit over time to purchase the home. Rent to Buy will usually be offered on new build homes.

Tenants will pay an Intermediate Rent, which is rent that must not exceed 80% of the local market rate (including service charges). This discounted rent should be available to tenants for a minimum of five years.

At the end of the initial five-year period, the tenant will be offered the chance to purchase the home either outright or on Shared Ownership terms. Should the tenant require more time to save for a deposit, the housing association can also continue letting the home on existing terms but is not required to do so.

Eligibility

You can apply for Rent to Buy if you are a first-time buyer.

There may also be other local eligibility criteria attached to Rent to Buy schemes. As a result, it will be important to check with the housing association offering the scheme.

Other

Property Developer Incentives

In recent months, an increasing number of property developers have begun offering incentives such as ‘mortgage paid offer’ and ‘stamp duty contribution/paid’ deals. These can be attractive propositions for first-time buyers as having a mortgage paid for the first twelve months could remove a lot of financial pressure, particularly in the current climate.

If you are attracted to a new build property because of an incentive, read the terms and conditions. A mortgage paid offer incentive is likely to be limited to a percentage of the purchase price of the property, and incentives and offers are often available on selected plots only and can be withdrawn at any time without notice.