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Author: Elliott Culley - Director & Mortgage Adviser of Switch Mortgage Finance
There are a range of government schemes for first time buyers available to help get on the property ladder. We will look at how the various government schemes for first time buyers work, and explain who is eligible to apply.
Lifetime ISA (LISA)
The Lifetime ISA (LISA) is a savings account designed to help first-time buyers save for a deposit on their first home. You can save up to £4,000 each year and the government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. You can continue to put £4,000 per year into the account until you reach age 50.
To be eligible, you must be between the ages of 18 and 39 and must not have owned a property before. You can use your savings to help you buy your first home if all the following apply:
- The property you are purchasing costs £450,000 or less.
- You must buy the property at least 12 months after you make your first payment into the Lifetime ISA
- You use a conveyancer or solicitor to act for you in the purchase – the ISA provider will pay the funds directly to them
you’re buying with a mortgage.
This is a good goverment scheme for first time buyers as it gives you the opportunity to save money and gain a bonus from the government. However it also offers flexibility because you can also use it as a retirement fund as well.
Help to Buy ISA
The Help to Buy ISA is another savings account that can help first-time buyers save for a deposit on their first home. The Help to Buy ISA scheme has now closed, and you cannot open an account, however if you have opened one you can still use it to help purchase a home.
You can save up to £1,200 in the first month and then up to £200 per month thereafter, and the government will add a 25% bonus to your savings, up to a maximum of £3,000. You can claim the 25% bonus up until November 2030.
The home you buy must:
- Have a purchase price of up to £250,000 (or up to £450,000 in London)
- Be the only home you own
- Be where you intend to live.
- Your solicitor or conveyancer will apply for the extra 25%.
The Help To Buy ISA was a good government scheme for first time buyers. If you opened one before the scheme closed you can still have time to utilise this. You can transfer the funds to a LISA (be aware of ISA limits), if you do not plan to purchase a home before November 2030.
Help to Build Loan
If you’re building a home or hiring someone to build one, you may be able to get a government-backed loan to cover part of the cost.
This is called a Help to Build equity loan.
You can apply for the Help to Build equity loan to do any of the following:
- Buy land and build a new home on it.
- Build an ‘airspace development’ flat (airspace developments are new properties built in unused space above an existing building).
- Convert a commercial property into a residential property.
- Build a ‘custom shell home’ (where a professional builds the structure, but you’re responsible for the design and layout inside)
- Demolish an existing property and replace it with a new home.
You can only get an equity loan if you can prove you are able to get a mortgage to cover the rest of the costs for the home you want to build.You can apply for between 5% and 20% of the estimated land and building costs for your home (or up to 40% of estimated land and building costs in London).
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Mortgage Guarantee Scheme
Building a deposit is still one of the biggest problems facing first time buyers attempts for homeownership. The Mortgage Guarantee Scheme is aimed at making it easier for you to secure a mortgage. Under the scheme, first-time buyers, home movers and previous homeowners with a 5% deposit have access to 95% loan-to-value mortgages.
The scheme offers lenders the option to purchase a guarantee on mortgages where a borrower has a deposit of only 5%, providing them some security if the client was not able to pay there mortgage. This lessens the risk of offering 95% mortgages for mortgage lenders and therefore they are more willing to offer them.
First Homes Scheme
You can look for new homes in your area that are advertised by developers as part of the First Homes scheme. Developers offer these homes to first-time buyers with 30% to 50% of the market value taken off the price. Every home that’s sold is valued by an independent surveyor to make sure the discount is based on actual market value.
The homes cannot cost more than £420,000 in London, or £250,000 anywhere else in England, after the discount has been applied. You can only sell the home to someone who is eligible to buy a First Home. You must give them the same percentage discount that you got, based on the home’s market value at the time of sale.
Guarantor Mortgage
A guarantor mortgage, also known as a family-assisted mortgage, is a mortgage deal where another person agrees to take on responsibility for your repayments in the event that you can’t pay.
That person is known as the ‘guarantor’ and is usually a family member or close friend of the mortgage applicant. The guarantor won’t own a share of the property and they won’t be named on the deeds. But they must legally agree to be liable for the mortgage repayments if the borrower falls behind.
Joint Borrower Sole Proprietor Mortgage
A joint borrower sole proprietor mortgage is a mortgage where the home buyer can add a family member income onto their mortgage application. This specialist mortgage is a way for a family member to help you increase your affordability, without handing over any cash. It’s a particularly good option for buyers who are still early on in their careers, so might be on lower salaries for the next few years, but expect their earnings to rise. Only the buyer will own the property (the “sole proprietor”), but your loved one will be on the mortgage as a “joint borrower”, which means they will be liable to pay the mortgage if you cannot.Shared Ownership Mortgage
Shared ownership, also known as ‘part buy, part rent’, is a type of mortgage that gives first-time buyers the chance to purchase a share in a new build property. You can take out a mortgage for the share you own (usually between 25% and 75%) while paying rent on the rest to a housing association. As you’ll only be paying a mortgage on the share you’re buying, the amount needed for a deposit is usually much less than if you were to buy a property outright.This scheme is ideal for first-time buyers who are unable to afford to purchase a home outright. Not all mortgage lenders offer shared ownership mortgages so it is worht doing your research in advance to find out which mortgage lenders can help you.Why Choose Switch?
Becoming a first time homeowner is an exciting journey, and with the right guidance and support, the process of getting a first time buyer mortgage can be straightforward. If you have any questions or need further assistance, don’t hesitate to contact us for expert advice.Why Switch Mortgage Finance
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