A volatile mortgage market paired with significantly high house prices has made conditions increasingly difficult for first-time buyers to put a foot on the property ladder. But there are a number of Government-led schemes to financially support – and some knock as much as 50 percent off the market value.
Despite the sizeable savings first-time buyers could make using a Government scheme, a majority of those surveyed by Money.co.uk admitted they weren’t planning on using one. In fact, the lower the household income, the more likely they were to avoid a scheme.
Claire Flynn, Money.co.uk mortgage expert said: “With mortgage rates much higher than they’ve been in recent years and the cost of living crisis affecting disposable income, this is certainly a challenging time for first-time buyers.
“Our research of 2,000 first-time buyers reveals that half of those on low income are hesitant to use Government housing schemes. However, assistance from one of the schemes available may be the best option for some would-be homeowners to get on the ladder.”
Ms Flynn said that, while the Help to Buy scheme stopped taking new applications in October 2022, other schemes such as the First Homes Scheme, Shared Ownership, and the Deposit Unlock Scheme might be “good options” for some first-time buyers to get on the property ladder.
She added: “Which scheme is right for you will depend entirely on your individual circumstances, so it’s important to chat with a mortgage broker before you make a decision.”
First Homes Scheme
Ms Flynn said: “First Homes is a Government scheme that offers homes at a 30 to 50 percent discount off the market value to assist first-time buyers in getting on the housing ladder.”
As noted, the scheme offers first-time buyers the chance to purchase a home at a substantial discount from the market value (30–50 percent).
According to Ms Flynn, the scheme is also available to first-time purchasers over 18 with household incomes under £80,000 (£90,000 in Greater London).
Local councils may have additional eligibility criteria, such as essential workers or those who live in the area, and the home must be a new build or one that was originally bought as part of the scheme. The scheme is also only currently available in England.
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The shared ownership programme enables people who don’t have the money to purchase a home entirely to purchase a share in one instead.
Ms Flynn said: “You can start with as little as 10 percent and as much as 75 percent of the property and gradually expand your ownership to eventually own it 100 percent. You lease the remaining portion from a housing organisation.”
The scheme enables those who can’t get a loan big enough to buy a house outright to obtain a share in one instead. The buyer can increase their equity share in the property through “staircasing”.
According to Ms Flynn, some terms restrict people from owning the property 100 percent so it’s important to check with a broker first.
People may also be at risk of eviction if they fail to pay their mortgage, rent or service charges. However, there are different rules on Shared Ownership in Scotland, Wales and Northern Ireland so research is key.
Mortgage Guarantee Scheme
Available until the end of this year, the Mortgage Guarantee Scheme is a Government initiative to make 95 percent loan-to-value (LTV) mortgage products more widely available. The idea is to allow more first-time buyers to get on the property ladder with just a five percent deposit.
People only need a five percent deposit, and lenders must provide customers with at least one five-year fixed-rate package.
According to Ms Flynn, higher LTV products generally have higher interest rates, and buying with just a five percent deposit can mean there’s a higher risk of going into negative equity than with a larger deposit.
Deposit Unlock Scheme
In 2022, the Home Builders Federation launched the first non-Government led home ownership scheme. The Deposit Unlock scheme allows anyone (not just first-time buyers), to buy a new build home with just a five percent deposit.
The scheme allows anyone (not just first-time buyers) to use a five percent deposit to buy a new build home. According to Ms Flynn, it’s also anticipated to become a lot more popular after the mortgage guarantee scheme comes to an end.
The scheme comes with a limited choice of properties and as it’s relatively new, there are also a limited number of lenders who are participating.
Right to Buy and Right to Acquire
Right to Buy provides council renters in England with a sizable discount to assist them in purchasing their rental property.
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Ms Flynn said: “Depending on how long you’ve been a tenant and the type and location of the property, the amount of the discount is calculated as the current market value of your home, minus 37 percent to 70 percent.
“While the obvious advantage of this scheme is the hefty discount on the house price, this disadvantage is you would need to be a council tenant for at least three years to acquire the property.”
The Right to Acquire scheme is extremely similar to Right to Buy. However, in England, it is only available to tenants of housing associations.
Ms Flynn said: “Depending on the price of your rental home, the reduction granted ranges from £9,000 to £16,000. Like Right to Buy, you will need to be a housing association tenant for at least three years to apply for this scheme.”
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