First-time buyer schemes

Last updated: March 2024 | 3 min read

Stepping onto the property ladder? Explore first time buyer schemes to ease your journey into home ownership. Whether you're drawn to the rent to buy scheme or considering build to rent options, this guide will illuminate pathways tailored for first-time buyers like you.

Introduction to first time buyer schemes

What is a first time buyer scheme?

First time buyer schemes in the UK present opportunities for individuals to purchase their own home, typically making the process more accessible financially. These schemes, often backed by the government or local authorities, aim to assist those entering the housing market for the first time.

Varieties of these schemes include the Help to Buy equity loan, shared ownership, and the First Homes scheme. Each provides different methods for reducing the initial cost barrier of purchasing a property, offering support like equity loans, subsidies, or shared ownership options to first time buyers.

Why consider these schemes?

Considering a first time buyer scheme can be a pragmatic decision for many. The primary benefit is the reduced financial burden when commencing home ownership. For example, with schemes like shared ownership, buyers can purchase a portion of a property, which decreases the initial deposit and mortgage payments required.

Similarly, schemes like Help to Buy offer equity loans that supplement a buyer's deposit, enabling access to more favourable mortgage rates. Beyond financial benefits, these schemes often prioritise local first time buyers, aiming to sustain local communities and provide housing opportunities tailored to local needs.

Comparing different first time buyer schemes

Key features and benefits

Equity loan schemes offer a valuable leg-up for many first-time buyers. In these schemes, a percentage of the home's value is provided as an interest-free loan for a set period, typically the first five years. This approach notably reduces the initial mortgage amount, often making repayments more manageable.

Local authorities play a crucial role in administering various schemes tailored to the needs of their communities. Some schemes focus on key workers, acknowledging their essential contribution to local community. Benefits include preferential rates or specific eligibility criteria designed to support these workers.

Shared ownership schemes, another option, enable you to buy a part of a property – often between 25% and 75% – and pay rent on the remaining share. Over time, you can increase your share in the property, a process known as "staircasing". This method is an effective way to break into the housing market with a smaller deposit and lower initial mortgage.

Common misconceptions and clarifications

A frequent misunderstanding is that schemes like Help to Buy or shared ownership are only for newly built homes. While it's true that new build homes are a significant focus, several schemes also apply to existing properties.

Some buyers believe that participating in a government scheme means they'll pay below the market value. However, it's important to understand that these schemes often involve paying the full market value, albeit with assistance in funding. For instance, in shared ownership, the purchase price reflects the actual market value of the portion bought.

Another confusion surrounds eligibility criteria, especially regarding household income and employment status. Eligibility rules can vary significantly between schemes and local councils, so it's crucial to check the specific requirements of the scheme you're considering.

Lastly, there's a myth that you need a large deposit for these schemes. In reality, many of these initiatives aim to reduce the upfront cost of buying a home. For instance, the Help to Buy equity loan scheme allows for a smaller deposit, making it more feasible for first-time buyers to secure a home.

Mortgage guarantee scheme explained

How does the mortgage guarantee scheme work?

The Mortgage Guarantee Scheme targets buyers with smaller deposits, aiming to increase home ownership. Under this scheme, the government offers a partial guarantee, typically up to 15%, on the home's purchase value. This guarantee mainly benefits lenders, as it reduces the risks involved with low-deposit loans. In essence, if a buyer defaults on a repayment mortgage, the government's guarantee shields the lender from some financial loss.

Buyers can purchase a new build home or an existing property under this scheme. The offer hinges on both the buyer's ability to pay a deposit – usually between 5% and 9% of the property's value – and their eligibility for a repayment mortgage. Remember, this scheme doesn't reduce the amount a buyer needs to borrow; it merely reassures the lender through government backing.

Eligibility criteria for the mortgage guarantee scheme

To be eligible for the Mortgage Guarantee Scheme, several criteria must be met. Firstly, the scheme requires that the property being purchased is your only home and not an investment or second property. This stipulation ensures the scheme focuses on genuine first home buyers or those moving up the housing ladder.

Your mortgage must be on a repayment basis, not interest-only. This requirement underlines a commitment to gradually gaining equity in the property, rather than just paying off the loan's interest. Moreover, the mortgage must be taken out with a lender participating in the scheme – not all do, so it's essential to check.

Crucially, the property's purchase price must fall under the scheme's maximum limit. This cap ensures that the scheme remains targeted at average-priced homes, aiding those who might otherwise struggle to enter the housing market.

The household income of applicants also comes under consideration, as the scheme aims to support those who might not otherwise afford a home.

Finally, the buyer's credit score and lending history will be assessed by the mortgage lender. While the scheme reduces risk for lenders, they still require assurance that the borrower can responsibly manage their mortgage repayments.

As with any mortgage application, the lender's own criteria and the borrower's financial circumstances, including their credit history and any existing debts, will influence the decision.

Understanding the first homes scheme

Steps to secure a discount with First Homes

The First Homes scheme offers newly built homes at a discount. This scheme assists you in buying your first home, offering properties at a reduced market price. To access this discount, your eligibility is a key factor. The local council determines your eligibility based on certain criteria like income and local connections.

Once eligible, you select a property from the designated First Homes. An independent surveyor then assesses the property's market value. The scheme mandates a minimum discount of 30%, which can be higher based on local council policies. For example, a home valued at £200,000 can be purchased at £140,000, accounting for the minimum discount.

Remember, these discounts are not just figures on paper; they reflect in the home's title deed. This ensures the discount passes on to future first-time buyers. On your part, you should prepare finances to cover the reduced price, similar to a standard property purchase. This includes saving for a deposit, considering mortgage options, and budgeting for associated buying costs.

What you should be cautious about

Engaging with the First Homes scheme requires understanding its limitations and responsibilities. Key among these is the resale condition. The discount you receive remains with the property, meaning any future sale is also at a discounted rate. This could impact your return on investment compared to selling on the open market.

Property selection can be limited too. First Homes are specific to selected plots within a development and the number of properties available is often restricted. Always check the availability in your desired location and consider if the homes on offer meet your long-term needs.

Pay attention to local area requirements set by the local council. Some councils impose conditions like a maximum household income or a requirement to be a current or former resident of the area. These factors dictate who can buy these homes, often prioritising local residents or those in certain occupations.

Additional government schemes for first time buyers

Help to Build: Tailored for self-builders

Help to Build supports self-builders with an equity loan similar to the Help to Buy scheme. It's designed for those constructing their primary residence, with loans of up to 20% (40% in London) of land and building costs. Eligibility requires owning a plot and having planning permission.

Rent to Buy: Bridging renting and buying

Rent to Buy lets first-time buyers rent at about 20% below market value, often for up to five years. This scheme aids in saving for a deposit, with options to buy or enter shared ownership post tenancy. It's ideal for renters aspiring to homeownership.

Special schemes: Armed forces and long-term disabilities

Support for armed forces personnel

Forces Help to Buy offers armed forces members an interest-free loan up to £25,000 for home purchase costs. Eligible after a set service period, this aids with mobility and assignment-related relocations. T

he scheme is particularly beneficial for service members frequently moving or facing sudden changes in family circumstances. It ensures they have a stable and affordable way to access the housing market, a significant step towards securing long-term family housing.

HOLD: Homeownership for people with long-term disabilities

HOLD assists long-term disabled individuals to buy a home share while renting the remainder. Tailored for enhanced independence, it allows buying between 25% and 75% of a home, chosen from the open market, with rent paid on the unsold share.

This initiative caters to those needing homes adapted to their disabilities, offering a more flexible and accessible route to homeownership. By facilitating the purchase of a suitable home, HOLD significantly contributes to the individual's autonomy and comfort, aligning with their specific living requirements.

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