Demand for UK property is soaring and at an all-time high. While this is, of course, fantastic news for investors and landlords, this does mean that first-time buyers are struggling to get their foot through the door and onto the property ladder.

Rising property prices, the need for a higher deposit, stricter requirements from mortgage lenders and fewer properties available on the market have equally led to this struggle for both first-time buyers and existing buyers.

Fortunately, there are some fantastic first-time buyer government schemes available to eliminate this struggle and make it much easier for all buyers to secure their dream homes. In this blog post, we take a look at the first-time buyer schemes available for aspiring homeowners.

Lifetime ISA

The Lifetime ISA (also known as the LISA) is a government scheme designed to support aspiring homeowners in building up their property deposits and is arguably one of the most cost-effective government house buying schemes for first-time buyers. The scheme is available to first-time buyers aged between 18 and 50, however, you will need to open your ISA and make a payment before you turn 40 in order to be eligible. 

For every £4,000 you save, the Government will add a 25% bonus to your savings to a maximum of £1,000 a year.

What are the benefits of the Lifetime ISA?

The great news is that, if you are buying with another first-time buyer, you can both have separate Lifetime ISAs which can be combined. This means that you can take advantage of gaining a higher bonus from the Government.

Adding funds to your Lifetime ISA is extremely easy to do and the bonus is automatically added without you needing to do anything. When the time comes to withdraw, all you need to do is simply request a withdrawal from the support team.

Lifetime ISA: Things to consider

If you do wish to withdraw for any reason other than buying a house, you may have to face some withdrawal penalties, so we advise researching beforehand.

As £4,000 is the maximum you can add to your Lifetime ISA each year, you will only be able to receive up to £1,000 from the Government bonus in that year. 

Differences between the Lifetime ISA and Help to Buy ISA

The Help to Buy ISA is slightly different, although is no longer available which is why the Lifetime ISA is currently the alternative option. Both ISAs offer a 25% bonus, however, the bonus from the Help to Buy ISA is paid once the property purchase has been completed, meaning that you cannot use the bonus towards the deposit, unlike the Lifetime ISA.

Help to Buy (Equity Loan)

The Help to Buy Equity Loan is available to first-time buyers with intentions of buying a new-build home within their regional price cap. The purpose of the scheme is to give first-time buyers a financial boost to become homeowners, providing that the property is their main residence and they already have a minimum deposit of 5%. 

The scheme allows first-time buyers to gain access to an interest-free equity loan of up to 20% of the property value (up to 40% in London) which must be repaid within the first five years, otherwise, interest will build up. The new scheme will run until March 2023.

Benefits of the Help to Buy Equity Loan

The main benefit of the Help to Buy Equity Loan is that, as a first-time buyer, you won’t have to wait until you’ve built your deposit. This means that you can go ahead with as little as 5%, which also gives you access to cheaper mortgage rates.

As new-build homes are becoming a firm favourite for first-time buyers, with sales of new-build homes rocketing over 25% in June 2021, according to Land Registry data, the Help to Buy Equity Loan is certain to be an invaluable scheme for aspiring homeowners.

Help to Buy Equity Loan: Things to consider

The equity loan is interest-free for five years and you will eventually pay an initial rate of interest of 1.75%, which will increase each year. For this reason, we really advise you to consider how you will repay this loan and if you intend to repay the loan before the five-year term ends.

Build to Rent

With this increasingly high demand for rental properties becoming more sought after, Build to Rent developments (also known as Build to Let) appeals to renters, with the sole intention of creating more permanent and affordable rental properties for renters.

As a London lettings agent and estate agent, we have many Built to Rent developments available, including Millet Place.

The benefits of Build to Rent

Renting is typically seen as a temporary solution, however, Build to Rent properties are designed to offer a longer-term solution, compared to renting. Unlike most rental properties, Build to Rent properties have on-site management working throughout all hours of the day to handle essential repairs.

With Build to Rent properties typically offering fantastic benefits to residents, i.e. a concierge, social spaces, memberships, and security, tenants can enjoy a more streamlined renting experience with high-quality management and better professional services.

Shared Ownership

Shared ownership is an effective way of buying a home as a first-time buyer but at a lower cost to the buyer. You’ll buy the share of a home from your landlord, which could be a housing association or the council, and then you’ll pay the rent on the remaining share. 

For example, you may choose to own 50% of the property and would need to pay the proportion of that in your monthly mortgage payments, as well as paying the remaining 50% to your landlord. You can choose exactly how much you would like to have as a share but you will need to have a mortgage to pay for the share you own.

Following on from this, you can choose to buy a bigger share in the property if you wish to at a later point, which is known as ‘staircasing’. This means that you have the option of eventually owning the property outright.

The benefits of Shared Ownership

Shared ownership is a very popular scheme in London and has acted as a stepping stone for thousands of first-time buyers with deposits as little as £5,000.

The small deposit makes Shared ownerships an attractive alternative to renting and buying, with the option of increasing your owned share at any time. 

Risks and things to consider

The part-buy part-rent scheme is available to all first-time buyers, providing that your household income is below £90,000 if buying in London. You can increase your owned share up to a maximum of three times, so it’s recommended to increase your shares when the time is right.

Each time you staircase, you will need to have a property valuation of your home as you’ll be buying each share at the current market price (not at the price at the time when you bought your first share). You will also need to re-mortgage.

With shared ownership, you are still a tenant and will therefore need to pay a service charge to maintain communal areas. In relation to stamp duty, you may not be eligible for the first-time buyer exemption so we do advise you to talk to a broker or estate agent for advice.

95% Mortgage

Earlier this year, Rishi Sunak announced plans to re-introduce 95% mortgages from April 2021 by offering incentives to mortgage lenders, something that was no longer accessible to first-time buyers at the time. Several major lenders are now taking part in the Government’s mortgage guarantee scheme.

This announcement means that first time buyers are able to get onto the property ladder with a deposit as little as 5%. 

The reintroduction of 95% mortgages has led to aspiring homeowners being able to purchase now rather than waiting until they have a 10% or 15% deposit readily available. Due to this, the property market has seen an exponential increase in first-time buyers showing interest in properties.

Benefits of 95% mortgages

Saving up a deposit is undoubtedly the most difficult part of buying a property. The ability to secure your own home for as little as 5% has meant that many buyers have been able to buy much sooner than originally anticipated.

This is also fantastic for first-time buyers who have concerns over rising interest rates and property prices.

In order to kickstart your way onto the property ladder, you may wish to use the Lifetime ISA in order to save up your 5% deposit as this will give you a huge boost.

Things to consider with 95% mortgages

95% mortgages do come at a cost. With a lower-than-average deposit, you should expect a much higher interest rate, which is typically around 3.9%. 

This also means that you may find it harder to be accepted by a lender as you’ll have to pass the lender’s strict affordability tests in order to obtain your mortgage. Providing that your credit history is on track, you have no outstanding debt, and you are able to afford the mortgage repayments, you should stand a good chance of being accepted.

Buy with JOHNS&CO

If you are looking to buy your first home, wanting to take advantage of available house buying schemes, or you are an existing homeowner looking to relocate, we can offer advice and guide you every step of the way.

Buy the perfect property in London with JOHNS&CO. With offices located across London, we are best placed to help with searching for your first home in London. 

Want to find out more about any of the first-time buyer schemes mentioned above? Please get in touch and we would be more than happy to advise you.