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.
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.
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.
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.
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.
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.
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.