All first-time buyers face a variety of challenges. Firstly, you may require a significant amount of savings in place - the average deposit for a first home in the UK is currently around £33,000[1], equating to 16% of the purchase price. Secondly, you’ll need to find the best possible mortgage for your circumstances.
Finally, you must illustrate the financial security and ability to make the mortgage repayments. Fortunately, there are several Government initiatives in place to assist with these challenges and help first-time buyers onto the property ladder.
1. Help to buy ISA
Help to Buy ISAs are in place to help first-time buyers boost their savings.
How does a Help to Buy ISA work?
When saving through a Help to Buy ISA, the Government will increase your savings by 25%. This means that for every £200 you save; you’ll receive an extra £50.
How much do I need to save?
You can save up to a maximum of £200 a month, with an initial lump sum payment up to £1,200. The minimum Government bonus is £400 meaning you’ll need to save £1600 before you can claim this.
What is the maximum Government bonus?
The maximum amount you can receive from the Government as a bonus through your Help to Buy ISA is £3,000. To get this full amount, you’ll be required to have saved at least £12,000.
Who can take out a Help to Buy ISA?
To be eligible you need to be 16 or over and not own or part own any property in the UK. They are available for each first-time buyer, rather than each household, so if you’re buying a property with your partner you could be eligible for a combined Government bonus of up to £6,000.
How is the bonus paid?
When you’re closing on your first home, simply instruct your solicitor or conveyancer to apply for the bonus. Once it’s received it will go towards the funds you’re putting down to purchase the property.
2. Lifetime ISAs
A lifetime ISA is a new initiative brought in by the Government in April 2017. It isn’t exclusively in place to help purchase property but can be used by first-time buyers.
How does the Lifetime ISA work?
It works similarly to the Help to Buy ISA, with the Government giving you a 25% bonus of the money you put in. You can save up to a maximum of £4000 a year, giving you a maximum Government bonus of £1000.
Who is eligible for a Lifetime ISA?
To take out a lifetime ISA you have to be over the age of 18 and under 40.
How can it be used to buy property?
If you withdraw funds from your Lifetime ISA, you’ll have to pay a charge of 25% of the amount you take out. However, you won’t have to pay this charge if you use it to buy a property under £450,000 with a mortgage. You also must have had the ISA open for over 12 months.
3. Help to Buy Equity Loan
The Help to Buy Equity Loan is in place to help first-time buyers (and existing homeowners) purchase a new build property with just a 5% deposit.
How does the Help to Buy Equity Loan work?
The Government provides an equity loan of up to 20% of the value of the property (40% in London), which is interest free for five years. As you’ll have a 5% deposit in place, you’ll then need to secure a mortgage for 75% of the purchase price.
When it comes to paying back the equity loan, this value will be calculated as 20% (or 40% in London) of the future value or sale price.
When does the loan need to be paid back?
The loan can be repaid at any time or when you sell the property.
Is the equity loan available for any type of property?
It is available exclusively on new build properties up to the value of £600,000 in England, £300,000 in Wales and £200,000 in Scotland.
Who is eligible for Help to Buy?
Help to Buy is available for both first-time buyers and existing homeowners, buying a new home which is to be their only residence.
4. Starter Homes
This new Government plan is soon to be implemented to help first-time buyers purchase a new build property with a 20% discount.
How does the Starter Homes scheme work?
It is aimed at increasing the number of homes being built and made available to first-time buyers. The homes will be built on brownfield sites (land previously used for industrial or commercial purposes and now earmarked for potential new developments) in England and will be sold at a 20% discount against the market price in the area.
The maximum cost of a home offered will be £250,000 outside London and £450,000 in the capital.
Who is eligible?
To be eligible you must be a first-time buyer under the age of 40.
When does it come into place?
There isn’t yet a fixed date for when the scheme will be available, however planning is well underway.
This guide to saving for a mortgage was produced in collaboration with L&C, the UK’s leading fee-free mortgage experts.
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