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How to get on the mortgage ladder

If you’re looking to become a homeowner this year, but are unsure of which route to take, we’ve answered some key questions about getting on the first rung of the mortgage ladder. 

Are there any schemes that help first-time buyers?

There are a number of government schemes available for first-time buyers. Some of the most well-known include:

Lifetime Individual Savings Account (LISA)
If you are between the ages of 18 and 39, you can open a LISA, which is a savings account aimed at helping younger people buy a home that costs less than £450,000. You can deposit up to £4000 per year and the government will put in a 25% bonus, up to £1000 per year.

Help to Buy Equity Loan
This is an option for first-time buyers looking to purchase a new build property. You will need a minimum 5% deposit and you will be able to get an equity loan of 20% of the purchase price, or 40% in London. There is no interest to pay for the first five years, however you will start paying back interest in year six and the payment will be interest-only, meaning you will not be reducing the amount you owe.

Shared Ownership
This is a scheme whereby you can buy a share of your home from a landlord and continue to pay rent on the other half of the share. You will have to have a mortgage in order to buy your share, but the rent on the remaining share will be a reduced amount. You then have the option to buy a larger share and can continue to do so until you own 100% of its value.

First Homes Scheme
This scheme was introduced in 2021 and allows certain people who fit the criteria to purchase a property at a discounted price of between 30% and 50%. If you then decide to sell later, the discount is passed on to the next buyer, thereby creating a chain of first-time buyers. 

What loan do most first-time home buyers use?

This largely depends on individual circumstances, such as age and income, but speaking with a mortgage adviser can help you get to grips with your options. There are a variety of mortgages available for first-time buyers, but in general they can opt for a floating rate mortgage – such as interest only or adjustable rate – which can be useful if they expect their income to continue to increase over time. 

Can I get a mortgage with only a 5% deposit?

Yes, there are mortgage options for those who have a 5% deposit, although the more you have saved for a deposit the better. This is because you will then have a loan that covers 95% of the home’s value, thereby giving you a larger amount to pay off. However, this is an attractive option for first-time buyers who want to get a foot on the property ladder without having to struggle to save more.

Can I get a mortgage on Universal Credit?

Being on benefits shouldn’t stop you from getting a mortgage – you could qualify for Support for Mortgage Interest (SMI) if you have been on Universal Credit for longer than three months in succession; it is a type of loan that will help you cover the cost of interest payments on a mortgage. Your benefits do count as an income of sorts, so they can be used towards a mortgage, although it is more difficult and will depend on the lender.

How hard is it to get a buy-to-let mortgage?

First-time buyers may be able to get a buy-to-let mortgage but it will be a lot more difficult than a standard one. Lenders see this as a high risk group, which will limit your options and you would probably need a significant deposit to secure one.

As mentioned, there are a few helpful schemes available to first-time buyers, so it is worth doing your research to see which one is suitable for your circumstances. Speaking to a mortgage broker is a great way to get clarity over the numerous options, giving you all the information you need to make an informed decision and make your first step towards home ownership.