Help Schemes for First Time Buyers

Help to Buy

What is Help to Buy?

Help to Buy is a government scheme for first time buyers. It enables you to get on the property ladder with a 5% deposit. The government gives you an equity loan to put towards the cost of a new-build home. 

The loan ranges from 5-20% of the property value (40% in London), and you'll need to purchase your home from a registered Help to Buy homebuilder. The current scheme runs until March 2023 and is available to first time buyers in England only.

Interest on your equity loan will start after five years, and you can repay some or all of your equity loan at any time. The amount of equity loan you pay back will be worked out as a percentage of what your home is worth at the time. If the price of your home has gone up, then so will the loan amount you’ll need to pay. If the value has fallen, the amount you’ll pay on the loan will too.

Who’s eligible for Help to Buy?

To qualify for Help to Buy, you’ll need to meet the following criteria:

• You’re a genuine first time buyer

• The home you want needs to be within the price cap for your region

• Anyone else named on the mortgage can’t have owned a home in the UK or abroad

• You don’t have any existing sharia mortgage finance

Your eligibility will be thoroughly checked, along with your affordability. You’ll also need to sign a legal form declaring that you’re a genuine first time buyer.

What are the pros and cons of Help to Buy?

Pros:

• You don't need a big deposit.

• LTV is lower so you can get a better mortgage rate.

• There’s no interest on the equity loan for five years.

• After five years you'll pay a competitive rate of 1.75% on your loan.

• Repay your loan when you like.

Cons:

• Your loan is a percentage of your home's value, so the amount you’ll pay back can go up as well as down.

• Not all lenders offer Help to Buy mortgages.

• Remortgaging can be difficult.

• You can only buy a new-build home from a participating developer.

• You need permission to make improvements to your home, even though you own it.

Read more in our Guide: Help to Buy Explained.

Shared Ownership

What is Shared Ownership?

Shared Ownership (sometimes called Part Ownership) is where you buy part of a property and rent the rest. You take out a mortgage on the bit you're buying, then pay a reduced rent on the bit you don't own. You’re able to buy between 25-75% of the home, and can buy some or all of the remaining share later on when you can afford to. 

Shared Ownership is only available for new-build homes and some existing properties via specific resale programmes from housing associations. They’re always leasehold, meaning you won’t own the land your property is built on and may have to pay ground rent and maintenance costs.

Shared Ownership mortgages help people who can’t afford 100% of the cost of a home to purchase a share of a property and rent the rest. It’s a good option if you’re struggling to save for a big deposit. You'll generally put down between a deposit of 5-10% of the share you're buying.

Who’s eligible for Shared Ownership?

To qualify for Shared Ownership, you’ll need to meet the following criteria:

• You're a first time buyer, or don't currently own a home

• Your combined household earns less than £80,000 a year (£90,000 in London)

To apply, you’ll first need to contact your local housing association to find out if Shared Ownership is available where you are. You’ll then need to register on the official scheme in your region.

What are the pros and cons of Shared Ownership?

Pros:

• It's one of the cheapest ways to get on the property ladder.

• Less money up front - you only need a small deposit for the share you're buying.

• You can increase the share you own when you're able to afford it.

Cons:

• You'll need to have the property valued before increasing your buyer's share. If house prices have increased since you took out the mortgage, you could end up paying more than you would have at the start

• You'll have to give the housing association first refusal if you decide to sell the property

• The homes are always leasehold, so you'll be liable to pay any ground rent or service charges in full (no matter what percentage of the property you actually own)

Read more in our Guide: Shared Ownership Explained. 

5% deposit scheme

What is the 5% deposit scheme?

The 5% deposit scheme does what it says on the tin: it’s a scheme where you can get a mortgage with just 5% deposit. The 5% mortgage scheme is a new government-backed scheme, allowing first time buyers, home movers and previous homeowners to get a 95% loan-to-value (LTV) mortgage. 

Since the pandemic started, 95% mortgages disappeared from the market, leaving lots of potential homeowners stuck paying high rents. The idea behind the scheme is to encourage mortgage lenders to bring these more accessible mortgages back to the market. 

The 95% mortgages will work just the same as any other mortgage - the experience won’t be any different for you as a buyer. The difference happens on the lender’s side. The scheme guarantees that the government will take on some of the cost if the lender loses money after giving you a mortgage. E.g. if you were repossessed or your home decreased in value. The scheme runs from April 2021 until December 2022. 

Who’s eligible for the 5% deposit scheme?

To qualify for the 5% deposit scheme, you’ll need to meet the following criteria:

• The property you buy needs to be a main residential home in the UK. You won’t be able to get a 5% deposit mortgage for second homes or Buy to Let properties.

• The property must be worth £600,000 or less.

• Your LTV can’t be more than 95%.

• The mortgage needs to be on a repayment basis. You won’t be able to get an interest-only mortgage.

What are the pros and cons of the 5% deposit scheme?

Pros:

• It works just the same as a regular mortgage.

• You don’t have to be a first time buyer - the scheme is open to home movers and people who’ve owned property in the past.

• You’re not restricted to buying a new build home - meaning you can book a viewing for that Victorian terrace you’ve had your eye on ...

Cons:

• The scheme is still fairly new, so you won’t have as many lenders to choose from.

• If your situation is a bit more complex (bad credit history or self-employed) you might have limited options.

• Your LTV will be high, so your monthly payments will be higher than if you had a larger deposit. 

Read more in our Guide: Getting a Mortgage With a 5% Deposit

Right to Buy

What is Right to Buy?

Right to Buy gives you the opportunity to buy your council home at a big discount. It’s only available in England and Northern Ireland (the discount is a lot lower in NI).

Your Right to Buy discount depends on where you live and whether you’re in a house or flat. The maximum discount you can get is £84,200 or £112,300 if you live in London. This is regardless of how long you’ve lived in your home, or how much it’s worth. 

If you live in a house, you get a 35% discount if you've been a tenant for between three and five years. After five years, the discount goes up by 1% for every extra year you've been a tenant. 

If you live in a flat, you get a 50% discount if you’ve been a tenant for between three and five years. After five years, the discount goes up by 2% for every extra year you’ve been a tenant. 

In both cases, the maximum discount you can get is 70% – or £84,200 across England and £112,300 in London (whichever is lower). For example, if you’ve been a tenant for 10 years, you could buy your flat worth £100,000 for just £40,000 – using a 60% discount.

Who’s eligible for Right to Buy?

To qualify for Right to Buy, you’ll need to meet the following criteria:

• The property you want to buy is your only home

• The property doesn't have any shared facilities with other households (like a flat with a communal bathroom or kitchen shared with others on your floor)

• You've had a public sector landlord for three years (councils, armed forces, NHS trusts/NHS foundation trusts)

• You're not currently in any legal battles with a creditor (credit cards, loans etc)

What are the pros and cons of Right to Buy?

Pros:

• You can stay in the place you call home - great if you love the property and your neighbours.

• It’s one of the cheapest ways to get on the property ladder.

• You probably won’t have to save for a deposit. 

Cons:

• Once you buy your home, you’ll lose any housing benefits you currently receive.

• Not all lenders will accept your Right to Buy discount as a deposit.

• You’ll have to pay back some or all of your discount if you sell your home within the first five years.

Read more in our Guide: Right to Buy Explained.

Other options for first time buyers

If you’re looking to get on the property ladder but don’t want to use a government scheme, there are some specialist options available. The following options could help you become a homeowner without a big deposit:

Guarantor mortgages

What are guarantor mortgages?

A guarantor mortgage is where someone else agrees to pay for your mortgage if you can’t. You might need a guarantor mortgage if you’re on low income, have a bad credit history, or can’t save a lot of money for a deposit. 

It’s not a joint mortgage - your guarantor won’t own any portion of your home, they’re just agreeing to pay if you can’t. Their name will be on the legal documents but they won’t have any stake in the property. 

A mortgage lender will need to secure your mortgage against your guarantor’s home or their savings. 

Who’s eligible for a guarantor mortgage?

Most people will be eligible for a guarantor mortgage. But the person you ask to be your guarantor will need to meet the following criteria:

• Be over the age of 21

• Own their own home or have a significant amount in savings

• Have a fairly decent credit rating

What are the pros and cons of guarantor mortgages?

Pros:

• You might not need a deposit

• You could borrow more money, meaning a nicer home in a better location

• It’s a good option for people with bad-credit or a low income

Cons:

• Your guarantor’s home will be at risk if you don’t pay the mortgage.

• If you fall out with your guarantor, it could make things difficult.

• Your mortgage term will be longer if your guarantor is over a certain age, meaning you’ll pay more monthly. 

Read more in our Guide: Guarantor Mortgages Explained.

Joint Borrower Sole Proprietor (JBSP) mortgages

What is a JBSP mortgage?

A JBSP is a mortgage that you take out with your parents or family member. You’re all responsible for paying the mortgage, but you’ll be the sole owner of the property. 

You’ll all need to pass the lender’s various checks, but a JBSP mortgage could open you up to properties that you wouldn’t have been able to afford on your own. This is because your family’s income is taken into account as well as your own.

Your family won’t be expected to stay on the mortgage forever. In fact, most lenders will want you to take over responsibility for the mortgage when you start earning more. They’re flexible mortgages, so you can reduce the amount your family needs to pay over time if you want to make the bulk of the payments. 

A JBSP mortgage can give you a boost at the start (when you need the most help) until your situation becomes more comfortable and you can afford the repayments on your own. When you come to the end of your mortgage deal, you may be able to switch to a mortgage just in your name. 

Who’s eligible for a JBSP mortgage?

To qualify for a JBSP mortgage, you’ll need to meet the following criteria:

• You're a first time buyer, remortgaging or moving home.

• Have up to four people willing to be named on your mortgage (most lenders will want them to be family)

• Have sole residence of the property - your family won't have a stake in your home.

• Have proof that your salary will increase over time.

What are the pros and cons of JBSP mortgages?

Pros:

• You could get a better property than if you were doing it alone.

• Ideal if you haven't built up a credit history, or have a low score.

• A good option if you're just starting out in your career, but expect your earnings to increase.

Cons:

• You'll miss out on the stamp duty exemption for first time buyers.

• You risk your family’s credit score if you don’t keep up your payments.

• JBSPs are bespoke mortgages that require carefully crafted applications - only certain lenders offer them.

Read more in our Guide: What is a JBSP mortgage?

Lifetime ISA

What is a Lifetime ISA?

Lifetime ISAs exist to help people save money either for their first home or for retirement. It’s becoming a popular way for younger people to save up for a house deposit.

When you set up a Lifetime ISA, the government adds a bonus of 25% of whatever you pay in (you can put in a maximum of £4,000 per year). So if you put £1,000 into your Lifetime ISA, the government adds an extra £250, leaving you with £1,250 at the end of the tax year.

Once the money’s in your ISA, you won’t be able to withdraw it until you’re buying a home (after 12 months of the account being open) or retiring (you’ll need to be aged 60+). If you’re diagnosed with a terminal illness, you’ll be able to withdraw your money without meeting this criteria.

Who’s eligible for a Lifetime ISA?

To open a Lifetime ISA, you’ll need to be:

• Between the age of 18 and 40

• a UK resident or a Crown servant (e.g. a member of the armed forces)

What are the pros and cons of Lifetime ISAs?

Pros:

• It’s essentially free money from the government

• You can grow your money quicker than with regular savings

• It’s a government product, so generally considered ‘lower risk’ than other investments

Cons:

• You can’t have owned any other property in the UK or abroad, even if you inherited a property and sold it on you wouldn’t be eligible

• You can only buy a property for less than £450,000

• You risk a 25% penalty if you withdraw your funds early

If you think you need something a bit different, it’s best to work with a specialist mortgage broker (like us!) who can explain your options. Our Mortgage Experts don’t do typical - they specialise in mortgages for applicants who don’t fit the mould. Get started.