First-time buyer schemes untangled



In years to come, we may well look back on 2016 as a heyday for first-time buyers.

With a multitude of incentives to help them there’s no better time for them to achieve their dream of home ownership.

Great rates

In comparison to five years ago, mortgage rates for those who have a 5% or 10% deposit towards a house, have decreased considerably.

At the time of writing on 17th February 2016, Newcastle Building Society were offering a two year fixed-rate, 95% loan-to-value (5% deposit) product, at 3.59% plus fees. Even better, if there is a ten percent deposit, there was a 2.29% fixed-rate, 90% loan-to-value product plus fees from Platform Mortgages. Please note that this is an example, there are many mortgages available.

If we rewind to 2010, rates were almost double but rates have been dropping as a result of the Bank of England holding the interest rate at 0.5% for the past 5 years.

Chart A: Bank of England historical two year fixed rates


Incentives-r-us, let’s break down each scheme

Help-to-buy (HTB) ISA – helping to save a deposit

The government recently launched this incentive to help first-time buyers to save a deposit for a house, boosting savings by 25%. So, for every £200 put in, there will be an additional government bonus of £50, with a maximum bonus capped at £3000.

What’s more, the incentive is per person, so each person purchasing can benefit. Savings can also be kick-started with up to £1200. At least £1600 must be saved to use the bonus boost towards a mortgage.

You don’t get the cash straight away, once someone has selected a bank to save with (HTB ISA account) and a property and mortgage is chosen, the solicitor would need to apply for the bonus cash. The solicitor and mortgage lender will take it from there. Click here for more info.

Other help-to-buy mortgage schemes – for extra help when there’s a 5% deposit

  • Equity loans – only available to buy a new-build home. Under this scheme, the applicant can borrow 20% of the purchase price of a new home interest-free for the first five years, as long as they have a 5% deposit.
  • Mortgage guarantees – available for new and old properties across the UK. The government undertakes to cover any of the mortgage lender’s losses as a result of any problems the mortgage holder might have in paying it back. However, they are still responsible for keeping up mortgage repayments on a help-to-buy scheme in exactly the same way as any other mortgage.

With both schemes there are limits on the cost of the property purchased. These limits differ across the UK.

Right to buy – buying a council house in full

This incentive allows those who rent a property from the council to purchase their house at a discounted rate.

The discount varies depending on location and type of property. Amongst other criteria, they generally need to have lived (non-consecutively) in a council property for three years.

Shared ownership – buy a share of a home from the council

This scheme allows a tenant to purchase a share of their home from the council and rent the remainder. As with purchasing any other property, they’ll need to raise the funds to buy their share with a mortgage.

They can buy up to three-quarters of the home’s full value and pay a reduced rent on the remainder. It’s not available to everyone, mainly those waiting for a new-build home, there are qualifying criteria.

First steps London – buying or renting an affordable property in London

Launched by the current Mayor of London, this incentive aims to help those with low incomes to rent or buy a property in London which, is affordable. They can part buy and part rent the property and there are eligibility criteria.

The properties are listed on the following website: First Steps website

With so many incentives and mortgage deals on offer it’s difficult to know what’s the best option but our team of Mortgage Consultants are on hand to give help and advice, just give us a call on 020 3040 4400 or email.