Schemes available to help first time buyers get on the housing ladder

Saving for a deposit is a massive challenge for first time buyers in the UK, especially with the ever-increasing costs of renting and the rising cost of living. Here we cover some of the schemes available to help first time buyers get on the housing ladder.  

The mortgage guarantee scheme

Introduced to encourage banks and building societies to offer 95% mortgages, this scheme means you only need a 5% deposit to buy your home.

• The mortgage guarantee scheme is open to both first-time buyers and home-movers across the UK.
• The property you’re buying cannot cost more than £600,000.
• The property you’re buying must be your only home.
• You must take out a repayment mortgage on the property you’re buying, not an interest-only one.

Points to bear in mind are that typically, the higher the loan-to-value ratio (LTV), the higher the interest rate tends to be, so you might be charged a higher interest rate with a 95% mortgage. Also, if property prices drop, there is a risk of falling into negative equity (when the value of your home is worth less than the mortgage secured against it).

The scheme currently runs until the end of June 2025.

For more information visit https://www.gov.uk/government/publications/the-mortgage-guarantee-scheme

The First Homes scheme

If house prices in the area, you live and work in are out of your reach, the First Homes scheme might offer a solution. It can give first-time buyers the chance to purchase a home for 30% to 50% less than its market value.

The scheme is available in England and the property must be your only or main residence. It can be either a new home built by a developer or a home you buy through an estate agent, which someone else bought before through the scheme.

To be eligible you must:

• be 18 or older
• be a first-time buyer
• be able to get a mortgage for at least half the price of the home
• not earn more than £80,000 a year before tax (£90,000 if the property is in London).

If you’re buying with others you must all be first-time buyers and must apply together, even if you’re not all getting a mortgage. Your joint income cannot be more than £80,000 a year before tax (£90,000 if the property is in London).

Local eligibility criteria

Some councils may prioritise giving First Homes discounts to key workers (as defined by the council), people who already live in the area and people on lower incomes. If you’re buying with others, you must all meet the local income criteria but only one of you needs to meet other local criteria. However these criteria only apply for the first 3 months that a property is on sale.

There are local exemptions for armed forces and their families, although you still need to meet all other First Homes eligibility criteria.

For more information visit https://www.gov.uk/first-homes-scheme

The Shared Ownership scheme

If you cannot afford all of the deposit and mortgage payments to buy a home you may want to consider a shared ownership option where you buy a share of the property and pay rent to a landlord on the rest.

Shared ownership homes are offered by housing associations, local councils, and other organisations, referred to as the ‘providers’ or the landlord. On a shared ownership scheme you:

• buy a share between 10% and 75% of the home’s full market value
• pay rent to the landlord for the share they own
• pay monthly ground rent and service charges to cover maintenance if relevant

You can take out a mortgage to buy your share or pay for it with savings. You’ll also need to pay a deposit, usually between 5% and 10% of the share you’re buying.

You can plan to buy more shares in your home at a later date (known as ‘staircasing’) and the more shares you own, the less rent you pay.

Homes available to purchase through shared ownership include:

• a new-build home
• an existing home through a shared ownership resale scheme
• a home that meets your specific needs

All shared ownership homes (houses and flats) are leasehold properties.

For more information visit https://www.gov.uk/shared-ownership-scheme

Lifetime ISA

You can use a Lifetime ISA (Individual Savings Account) to buy your first home (as well as to save for later life). You must be 18 or over but under 40 to open a Lifetime ISA.

You can put in up to £4,000 each year, until you’re 50. You must make your first payment into your ISA before you’re 40. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year.

The Lifetime ISA limit of £4,000 counts towards your annual ISA limit which is £20,000 for the 2024 to 2025 tax year. You can hold cash or stocks and shares in your Lifetime ISA or have a combination of both.

To open and pay into a Lifetime ISA you must be a resident in the UK, unless you’re a crown servant (for example, in the diplomatic service), their spouse or civil partner.

Using your ISA to buy your first home

You can use your Lifetime ISA to buy your first home if:

• the property costs £450,000 or less
• you buy the property at least 12 months after you make your first payment into the Lifetime ISA
• you use a conveyancer or solicitor to act for you in the purchase
• you’re buying with a mortgage

You cannot use your savings to buy a home if you’re getting a private mortgage from a relative or friend.

Buying with someone else

If the person you’re buying with also has a Lifetime ISA, you can both use your savings and government bonus towards the purchase of your new home. To qualify you must both:

• be first-time buyers
• meet all the conditions under ‘Buying your first home’

For more information visit https://www.gov.uk/lifetime-isa

Friends and Family Deposit Match scheme

Some house builders are now offering a Friends and Family Deposit Match scheme which allows first-time buyers to increase their deposit. These include: Redrow, Taylor Wimpey, Linden Homes, Barratt Homes and Allison Homes are all offering a version of this scheme.

The scheme allows first-time buyers to use money gifted by family or friends towards their deposit. The house builder then matches the gifted sum up to a fixed amount which will vary from one company to another.

Being able to increase the deposit, lowers the amount you will need to borrow, thus reducing mortgage repayments.  It is worth bearing in mind that a gifted deposit from a friend, or family member, could become an issue if the donor suddenly asks for their money back. It is worth getting legal paper work in place to help ensure you are covered in event of this occurring.