The government help to buy loan scheme is now closed and was previously available in England only, this loan was available for first-time buyers who wanted to buy a newly built property as their main residence. If you applied before 31st October 2022, your application will still be processed, but you must complete the purchase of your home by 31st March 2023. This has left many people now wondering what will replace help to buy, and if there are new schemes that can help first-time buyers.
The Help to Buy scheme meant you could buy a new build home with a 5% deposit, by borrowing an equity loan from the government of up to 20% of the property’s value ( 40% in London), with a mortgage taken on the remaining value. The loan was interest-free for the first five years.
The scheme was designed to help first-time buyers get on the property ladder, by making properties more affordable and giving lenders assurance. However, the scheme was contributing to inflated house prices, causing first-time buyers to pay over the odds for a new build property.
So What Will Replace Help to Buy and What Alternatives Are There for First-time Buyers?
Lifetime Individual Saving Account:
- The Lifetime Individual Savings Account or LISA is a Government backed savings account, where you can save up to £4,000 each tax year and the Government will add a 25% bonus to your savings to a maximum of £1,000 per year. You can use the money to buy your first home on a property costing £450,000 or less or to withdraw after the age of 60. You must be aged 18-39 to open a LISA and can save money until you are 50. If you are buying as a couple and both have a LISA you can use both savings accounts to buy your property. There are penalties if the money is not used for the purposes stated.
Help to Buy ISA:
- You will need to have opened this before November 2019 as the Government closed new applications, but if you already have an account you can keep saving until November 2029 and can use the money for a house deposit until December 2030. The savings limit is, however, lower than the LISA, where you can pay up to £200 per month and the government will top up any contributions you make by 25%, up to the contribution limit of £12,000. If you are buying as a couple and both have an ISA you can use both savings accounts to buy your property. You can use the money to purchase a home up to the value of £250,000 or £450,000 in London.
Help To Buy: Mortgage Guarantee Scheme:
- In April 2021, the Government launched an initiative called the Mortgage Guarantee Scheme, meaning you can put down just a 5% deposit and the Government will provide a guarantee to mortgage lenders on the portion of the mortgage between 80% and 95% of the property value, on properties up to the value of £600,000. The current scheme is subject to participating lenders and was due to end in December 2022, but has now been extended to the end of 2023.
Help To Buy: Wales:
- Help to Buy Wales provides a shared equity loan of up to 20% to buyers of new-build homes up to the value of £250,000. The buyer needs a 5% deposit.
Homebuy: Wales:
- Homebuy Wales is a scheme that is limited to particular areas and is subject to local residency and employment eligibility criteria. It provides an equity loan to buy an existing property. 70% of the purchase price needs to be covered by a mortgage or savings. The loan can be repaid before but is usually repaid when you sell the property, to the equivalent percentage value of your home.
Shared Ownership:
- If you can’t afford the deposit and mortgage repayments to buy the property you want, then you could consider a shared ownership scheme. This is where you can buy a proportion of the property up to 75%. You then pay rent to the provider on the rest. The benefit of shared ownership is that you need less money to buy and a smaller deposit. Also, the loan is interest-free for the first five years. However, if the housing provider owns 20% of the property initially when you come to sell, they will still be entitled to 20% of the value, so this is something to bear in mind.
Right to Buy and Right to Acquire Home:
- The Right to Buy scheme allows council or housing association tenants in England or Northern Ireland to buy their properties at a discount.
Older People:
- Buyers over the age of 55 can buy up to 75% of the value of a property. A deposit will usually range from 5%-25%. A gross annual household income of less than £80,000 or £90,000 in London is required.
People with Disabilities:
- Home Ownership for People with Long-Term Disabilities (HOLD) can help you buy any home that’s for sale on a Shared Ownership basis if you have a long-term disability and if the properties through other home ownership schemes do not meet your requirements. Ownership is between 10-75% of the property value. Rent is paid to the housing provider on the rest.
95% Mortgages:
- 95% mortgages are available to first-time buyers through the mortgage guarantee scheme and Natwest is one lender that has recently introduced its own 95% mortgage products.
The Bank of Mum and Dad:
- Parents can give their children the gift of cash to make up for a shortfall in their deposit so it is possible to borrow more and access a cheaper mortgage deal. In this case, written confirmation that the deposit is being gifted will be required.
Guarantor Mortgages:
- This is where someone, usually a parent, acts as a guarantor, which means should you default, they will commit to paying the mortgage payments. The main advantage is the borrower can take out a larger mortgage than if they apply for a traditional mortgage on their own, sometimes 100% of the property’s value.
Joint Borrower, Sole Proprietor Mortgages:
- This is a mortgage in which you apply with someone willing to accept joint responsibility for making mortgage payments without having a legal claim to the property. Both applicants will need to pass affordability checks to show they can afford the mortgage payments and require a deposit to be put down.
Private Alternatives to Help To Buy
- Deposit Unlock – Provided by house builders to allow a 5% deposit.
- Proportunity – Buy with a 5% deposit, by borrowing 10-25% of the property price. Interest is charged from day 1 of the loan. Open to all buyers and for all home types. Like with the Help to Buy Equity Loan scheme, you borrow a percentage of the value of your home. So the amount you’ll pay back will be the same percentage that you borrowed – not the cash amount.
- Rent to buy – Launches by first-time buyer developer Fairview New Homes, Save to Buy is the only scheme of its kind to help first-time buyers to save for their final deposit by living in their new home. This scheme is available on selected plots in and around London.
- Ahauz – You put down at least 5% of the value of the property as a deposit and then borrow up to 25% of the property’s value from Ahauz, getting a mortgage for the rest. Interest is paid on the loan and, like with shared ownership, when you sell, you pay back the same proportion of the price that you borrowed.
- Wayhome Gradual Ownership – For this scheme, you put down a 5% minimum and Wayhome’s funding partners pay the rest, so no mortgage is needed. You then pay rent to Wayhome on the portion they own and can build up the proportion of the property you own over time.
Note: Please always read the terms of conditions of schemes and consult a property professional where possible.
In conclusion, first-time buyer home schemes can be a useful tool for those looking to get on the property ladder. These schemes can assist with financing and can help make homeownership more accessible to those who may struggle to afford a home otherwise.
However, it is important to thoroughly research the different schemes available and consider the potential drawbacks, such as restrictions on resale or the possibility of incurring additional costs in the long term.
Ultimately, the decision to use a first-time buyer home scheme should be made based on individual circumstances and financial goals. With careful consideration and planning, first-time buyers can make their dream of owning a home a reality. We have explained the entire home-buying process in our step by step guide to buying a house.
Contact Propertyable
If you have any questions, please get in touch with Propertyable today.
