Everything you need to know to get onto the property ladder
Buying your first home can be a real challenge, particularly given steep house prices in many parts of the UK.
The good news is that there are lots of things you can do, including taking advantage of government first time buyer schemes, which can make getting on the housing ladder a little bit easier. Here’s our rundown of some of the options available to first time buyers which can help turn the dream of owning a property into a reality.
Get saving for a depositThe bigger the deposit you can save, the easier it will be to get on the property ladder and the wider the choice of mortgages you’ll have available to you. Although 100% mortgages do exist, they are usually dependent on parents agreeing to keep a percentage of the purchase price in a separate savings account with the mortgage lender.
If you’re struggling to save, write down a list of all your outgoings and look at any non-essentials you might be able to cut out. Lenders offer favourable rates to those with larger deposits to put down, so the more you can put away, the cheaper your monthly mortgage payments are likely to be.
The mortgage guarantee scheme
The mortgage guarantee scheme was unveiled in the March 2021 Budget and aims to help first time buyers and home movers who’ve managed to save a 5% deposit but need some additional help to get on to the property ladder.
Buyers can purchase a property costing up to £600,000 using their 5% deposit. The Government will guarantee the mortgages offered, which means if the property is repossessed or sold for less than the value of the outstanding mortgage, some of the lender’s losses will be covered.
The scheme is scheduled to run from April 2021 until December 2022. The terms of the scheme require lenders to offer a five year fixed rate as part of their product range, to help buyers looking for certainty in their budget.
The mortgage guarantee scheme is similar to the Help to Buy mortgage guarantee scheme which ended in 2016.
Help to BuyHelp to Buy is a government scheme designed to help people with limited deposits buy their first property.
How does the Help to Buy scheme work?There are currently two parts to the Help to Buy scheme, an equity loan and an individual savings account (ISA).
The equity loanUnder the equity loan part of the scheme, which is available to first time buyers purchasing a new-build property, you need to put down a 5% deposit. The Government will lend you a further 20% of the property price interest-free, or 40% if you’re buying in London, for the first five years.
After the five-year interest-free period finishes, you’ll be charged interest on your loan from the Government at 1.75%. The interest rate will increase every year in April by the Consumer Price Index measure of inflation, plus another 1%.
The current equity loan scheme will run until March 2023. The new scheme will only be available to first time buyers, who will be able to purchase properties up to the value of new regional price caps, shown below.
New Help to Buy regional property price caps
(Price cap for properties eligible for Help to Buy Equity Loan scheme from April 2021 to March 2023)
North East £186,100
North West £224,400
Yorkshire and The Humber £228,100
East Midlands £261,900
West Midlands £255,600
East of England £407,400
South East £437,600
South West £349,000
Source: HM Treasury analysis
This scheme ends in 2023, and there are currently no plans to introduce any further equity loan schemes.
The ISAThe Help to Buy Individual Savings Account (ISA) was designed to help first time buyers save up a deposit.
Savers could initially pay in up to £1,200, followed by up to £200 a month, and the government will add another 25% to any contributions you make. The maximum bonus you can claim is £3,000.
Help to Buy ISA accounts closed to new savers on 30th November 2019. If you already have an account, you can keep saving into it until 30th November 2029, after which additional contributions will no longer be allowed. The government bonus must be claimed by 1st December 2030.
Who is the Help to Buy scheme for?• Help to Buy is designed for first time buyers who are finding it hard to move up the property ladder.
• Properties bought under the equity loan part of the scheme must be new build homes, and within the value of the regional price caps.
• You can’t use the scheme to buy a property to let out.
Advantages of the Help to Buy scheme• It’s for buyers who’ve managed to save a 5% deposit.
• The equity loan is interest-free for the first five years.
Disadvantages of the Help to Buy scheme• You’re restricted to new build properties only, so if you want to buy an older property, you won’t be eligible.
• You can only buy a property from house builders registered to take part in the scheme.
• When you sell, you’ll need to pay back the Government the percentage it contributed.
Right to BuyThe Right to Buy mortgage scheme enables council tenants in England to buy their council home at a discount.
How does it work?Right to Buy gives you a discount on the market value of your home up to £84,200 across England, or up to £112,300 if you’re in London. The amount increases every year in line with the Consumer Prices Index (CPI) measure of inflation. The actual discount you’ll receive depends on how long you’ve been a tenant, the value of the property, and the property type, for example, whether it’s a flat or a house.
Who’s it for?Council tenants whose council property is their only or main home, and the property is self-contained. You must have had a public sector landlord such as a council or housing association, for three years.
Advantages of Right to Buy• You’ll get a discount off the property’s market value, to help make buying your property more affordable.
• After 5 years you can sell your home without having to repay the discount
Disadvantages of Right to Buy• If you’re buying a flat, you’ll have to pay a service charge to the council or housing association for the building’s maintenance.
• You won’t qualify for housing benefit once you own the property.
Shared OwnershipShared Ownership schemes allow you to buy a share of a property from a council or housing association, and pay rent on the remaining part, with an option to buy a bigger share later.
How does shared ownership work?You can buy an initial share in the property, typically for between 25% and 75% of the property’s value. You can buy further shares, known as staircasing, up to a value of 100% of the property later if you want to.
Who’s it for?You’ll be eligible for Shared Ownership if your household earns £80,000 a year or less outside London. This rises to £90,000 if you live in the capital.
Advantages of shared ownership• The amount you’ll have to put down as a deposit is much smaller, as you’re only buying part of the property.
• The scheme makes owning a property more affordable for those who wouldn’t be able to buy a home outright.
Disadvantages of shared ownership• When the property is sold, you’ll only make a profit on the portion of the property you own. The remainder will go to the housing association or council.
• If there’s a loss, this will also be split between you and the council or housing association relative to the shares you own.
Co-ownership in Northern IrelandCo-ownership in Northern Ireland works in a similar way to Shared Ownership in England, enabling first time buyers to purchase a share in a property and pay rent on the part they don’t own.
How does Co-ownership in Northern Ireland work?You can buy a minimum share of 50% in a property or if you can afford a bigger share, you can buy up to a maximum of 90%. You’ll have a mortgage on the part of the property you own, and you’ll pay rent on the remainder to the Northern Ireland Co-ownership Housing Association (NICHA). The property you want to buy can’t cost more than £165,000.
Who’s it for?First-time buyers in Northern Ireland age over 18. You can’t own any other property and the property you want to buy can’t be a housing association property.
Advantages of co-ownership in Northern Ireland• The scheme makes owning a property more affordable for those who wouldn’t be able to buy a home outright.
• As you’re only buying part of the property, the amount you’ll have to put down as a deposit is much smaller.
Disadvantages of Co-ownership in Northern Ireland• You’ll only be eligible for co-ownership if you couldn’t otherwise afford to buy a property without the scheme.
• You’re responsible for all repairs in the property.
Borrow from Mum & DadIf you are fortunate enough to have family who are prepared to provide you with financial help, there are various ways they can support you. For example, they may agree to loan you the money you need for a deposit, or they may act as guarantors or by taking out a mortgage jointly with you.
Some mortgages are specifically designed with parental support in mind, enabling spare equity in the parental home to be used as additional security.
Parents who agree to become joint owners and who also own their own home must remember that this could lead to a capital gains tax (CGT) liability and incur a stamp duty surcharge on the additional property.