LOW income first-time buyers can get a 30% discount on property under the First Home scheme, which kicks off today.
The new programme will cap the price of new affordable homes at £250,000, or £420,000 in London – but only 12 are up for grabs.
The properties, which are available to buy on the Keepmoat Homes development in Bolsover, are part of a pilot scheme that launched today.
It’s hoped it will lead to 1,500 homes built under the programme by the end of the year – but it’s unlikely you’ll be able to buy one of the 12 available today.
But there are plenty of other schemes available for first-time buyers to use today to help them get a foot on the property ladder.
From interest-free Government loans to free cash for your savings, we take you through what schemes are out there if you’re looking to buy your first home.
Plus, if you’re looking for inspiration for how to save for the deposit, you should check out our My First Home series.
Help to Buy loan
Under the Help to Buy loan, the Government will lend you up to 20% – or 40% in London – of the cost of a new build home.
New rules introduced in April mean it’s only available to first-time buyers buying new-build properties.
You’ll still need to fork out at least 5% of the total property value for a deposit though if you’re eligible.
You also have to get a mortgage for at least 25% or more to make up the rest.
What is stamp duty?
STAMP duty land tax (SDLT) is a lump sum payment anyone buying a property or piece of land over a certain price has to pay.
Up until July 8 2020, most house-buyers in England and Northern Ireland had to pay stamp duty on properties over £125,000.
This was temporarily increased to £500,000 until March 31, 2021 in the government’s mini-Budget in July 2020.
The Chancellor extended the help until September 2021 in his Spring Budget.
The holiday will last in full until June, before being reduced to £250,000 from July.
The rate a buyer has to fork out varies depending on the price and type of property.
Rates are different depending on whether it is residential, a second home or buy-to-let, or whether you’re a first-time buyer.
The usual system in England for residential properties means:
- First-time buyers pay nothing on properties below £300,000 (and relief available on properties of up to £500,000)
- You pay nothing if the property costs below £125,000
- You pay 2% if it is worth between £125,001 and £250,000
- You pay 5% if between £250,001 and up to £925,000
- You pay 10% if it is between £925,001 and £1.5million
- You pay 12% on anything over £1.5million
For second homes or buy to let properties:
- 3% on purchases up to 125,000
- 5% on purchases between £125,001 and £250,000
- 8% on purchases above £250,001 and £925,000
- 13% on purchases above £925,001 and £1.5 million
- 15% on purchases above £1.5 million
Stamp duty rates are different in Scotland and Wales.
The loan is capped at 1.5 times the average first-time buyer property price by region in England in order to help those that need it the most.
The loan is interest-free for the first five years and then you’ll have to pay from 1.75%.
That can rise with each new tax year, following the Consumer Prices Index (CPI) level of inflation, plus 2%.
There’s a £1 monthly management fee for the full term of the equity loan and you’ll have to repay the loan on top of any mortgage repayments.
Homeowners can choose to pay off the loan with the equity gained when they come to sell or add it to your mortgage when they come to renew.
Alternatively, they can continue to make repayments until it’s paid off although this can be costly.
Like a mortgage, the loan is also secured against your home, which means if you fail to make the payments the property could be repossessed.
Lifetime Isas replaced Help to Buy Isas but still offer you a free bonus from the Government worth 25% of your savings.
The bonus is added onto whatever savings you have in the account at the end of the tax year.
For example if you put £1,000 into your Lifetime ISA, the government will add an extra £250, that means you’d get £1,250 at the end of the tax year.
You can put a maximum of £4,000 into a Lifetime ISA each tax year, until you’re 50.
- IF you want to buy a home worth more than £450,000 with your LISA, 25 per cent of what you withdraw is taken off
- You can only use a LISA for a property if you have NEVER owned a property before (including a share of a property that was inherited, or a home overseas)
- If you’re a first-time buyer purchasing with someone else (a partner or friend, for example), they cannot have owned a property before
- If you’re using the money for a new home it is paid directly to a solicitor, not to you
- If you reach the age of 40 on or before 6 April 2018 you won’t be eligible for a LISA
- If you’re using the money for retirement you can only access it on your 60th birthday. By contrast, you can access money in a private pension from the age of 55.
The bonus you can earn per year is capped at £1,000 but if you save the maximum amount between the ages of 18 and 50, you’ll score an impressive £32,000 top up when you buy your first home.
If you want to use the scheme to buy a home though you need to be a first-time buyer and the property you purchased is capped at £450,000.
You can’t use a Lifetime Isa to buy a home you want to rent out, or a holiday home either and you have to use a residential mortgage as well.
The cash can also be used for retirement but you won’t get a bonus for both.
You’ll also be charged a 25% penalty for withdrawing your cash early, which is worth bearing in mind.
You can open a Lifetime Isa with any bank, building society or investment manager that offers the product as long as you’re over 18 but under 40-years-old.
Shared ownership lets buyers purchase a portion of the equity in a property if they can’t afford to take out a mortgage for the total value of the home.
You’ll co-own your home with a housing association, which will charge you rent on its portion of the property.
The scheme is open to anyone looking for their next home, not just first-time buyers, but they are reserved for specific properties.
You will also still need to put down a deposit, and you can take out a regular mortgage for the part you own.
Monthly mortgage repayments will be on top of the rent you pay to the housing association.
But unlike private renting, you won’t have a landlord who can ask you to move out at any time, and your rent rate is likely to be less than market value.
Buyers must purchase between 10% and 75% of the property to use the initiative, and they can then “staircase” – buy more shares in instalments – until they own 100% of it.
Even though you’re paying for rent and a mortgage, for most buyers this is cheaper than privately renting somewhere.
It’s worth bearing in mind though that the portion you buy is worth a percentage of the property’s value at the time, so you’ll pay more if house prices go up.
But it also means you’ll pay less if house prices fall.
You will have to pay legal fees and stamp duty tax – if applicable – every time you staircase yoo, which could end up costing you more in the long run.
Mortgage guarantee scheme
The mortgage guarantee scheme launched this year and is designed to help first-time buyers get a home loan with only a 5% deposit.
The scheme is designed to encourage lenders to bring back the high loan to value mortgage deals that were available to first-time buyers in 2019.
Many lenders pulled these mortgages in the wake of the coronavirus pandemic – there were just eight with a 95% loan-to-value (LTV) in January, 2021, according to the Treasury.
The move has seen many young buyers locked out of the property market as they compete with a surge in house prices that outstrips wages.
How do you find the best mortgage deals?
WE explain how to ensure you get the best deal on your mortgage or remortgage:
Websites such as MoneySuperMarket and Moneyfacts have mortgage sections so you can compare costs. All the banks and building societies will have their offers available on their sites too.
If you’re getting confused by all the deals on the market, it might be worth you speaking to a mortgage broker, which will help find the best mortgage for you.
A broker will typically cost between £300 and £400 but could help you save thousands over the course of your mortgage.
You’ll also have to decide if you want a fixed-deal where the interest you’re charged is the same for the length of the deal or a variable mortgage, where the amount you pay can change depending on the Bank of England Base Rate.
Remember, that you’ll have to pass the lender’s strict eligibility criteria too, which will include affordability checks, and looking at your credit file.
You may also need to provide documents such as utility bills, proof of benefits, your last three month’s payslips, passports and bank statement.
Under the scheme, the Government offers lenders the option to buy the guarantee they need to provide mortgages that cover the other 95%.
The guarantee will compensate them for a portion of their losses if you default on your loan.
All lenders under the scheme will also offer mortgages fixed for at least five years as part of their range of products so you can have a sense of security knowing it won’t go up over the short term.
However, it doesn’t actually benefit the buyer and you may find you can get a cheaper deal elsewhere.
Many lenders are bringing back 95% mortgages outside of the scheme, which may give you more freedom over the value of the property you choose.
This is because mortgages under the guarantee scheme are capped at £600,000.
Before you get the loan though, you’ll still be subject to the usual affordability checks.
Help to buy Isa
Savers who’ve already opened a Help to Buy Isa have up until 2029 to purchase a home and get the Government bonus on their savings.
These closed to new applicants in 2019 so if you haven’t already opened one then you won’t be able to get the help.
The bank accounts are backed by the government, which will top up your savings by 25%, up to £3,000, to help you onto the property ladder.
So for example, for every £200 you save the government will top it up by £50.
To claim the maximum government bonus, you’ll need to have saved £12,000 into the account, which will be topped up to £15,000 in total.
You can also earn interest on top of whatever you save.
The rates are set by the bank that you’ve taken out an account with and will vary depending on the lender.
Remember though, you won’t ever receive the bonus as a lump sum of cash – it will be handed straight to solicitors to be tied up in the other costs.
It means you won’t be able to use it towards the deposit for your home, but on other associated costs instead.
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Whether you’re renting or own your own home, there have been changes to rules this year that you should be aware of.
Here’s a list of UK regions where it’s cheaper to buy a home with a 10% deposit than to rent.
One buyer used an easily claimable 20% discount, while saving £1,800 a month, to buy their first home aged just 24.