Being a first time home buyer can be a little bit daunting. It’s the biggest purchase you’ll (probably) ever make, you feel like you don’t have as much information as the buyers who’ve done it already, and because you don’t have a property to sell first, there’s a lot of pressure on your hard-earned savings.
Still, buying your first home is an achievable goal. The government wants people to be on the property ladder, and there are plenty of schemes out there designed to help you do just that.
Are you a first time buyer?
- Have you ever bought a house or flat, to live in or to rent, in the UK or abroad?
- Have you ever inherited a property or been given a place to live as a gift?
- Do you have property in your name that you could sell to buy a new home?
If you (and, if applicable, the person you’re planning to buy with) can answer ‘no’, to all these questions, congratulations – you’re officially a first time buyer.
Now let’s look at the benefits that status gives you.
You’re not tied to an existing home
1. You don’t have to sell first
If someone owns a home already, they’ll probably have to sell it before they can buy, and there can be all sorts of legal and financial delays in this process. The fact that first-time buyers aren’t tied to an existing property can be really attractive to sellers on a deadline. You might even hit the jackpot and find a seller who’ll accept a lower offer to make a quick sale.
There’s lots of government help available
A quick caveat here: not all of these schemes are available in all parts of the UK and you’ll have to choose one scheme where you meet the eligibility criteria.
Here, you buy a percentage of a house or flat (between 25 and 75%, depending on how much you have for a deposit), and your local council or a housing association buys the rest.
Under part or shared ownership schemes, you have to pay your mortgage on the part of the house you own and pay rent on the part of the property that you don’t. But because your deposit covers a larger percentage of the home loan you take out, you’ll probably have a lower interest rate and smaller monthly repayments, so you could still save money in the long run.
Over time, you’ll also have the chance to buy more shares of the property, which will bring your rent down further. This is called ‘staircasing’, and you can keep buying shares until you own 100% of your home.
3. Equity Loans
The Help to Buy Equity Loan is only available in England, although something similar exists in the Welsh Homebuy scheme.
As long as you (and the home you want to buy) meet the eligibility criteria, an equity loan lets you borrow money from the government to put towards your new home. You can borrow 20% of the purchase price, or 40% in London. Then, for the first five years, the loan is interest-free. From the sixth year on, you only have to pay the interest on the loan, although you can also pay off the remaining amount at any point within 25 years, when you sell the home or when you pay off your mortgage.
4. The First Homes Scheme
The First Homes scheme is comparatively new. It’s part of the government’s plans to make sure that more of the new homes being built in the UK are affordable.
With this scheme, you get a discount of at least 30% on the market value of a new build home which is worth £250,000 or less (rising to £420,000 or less in London), as long as you can tick a few boxes:
- You have to have a household income (so a combined income, if you’re buying with someone else) of less than £80,000 per year.
- You have to pay no more than a 50% deposit on the remaining amount of the property price.
- In some cases (especially when the First Homes properties have just been put on the market), you may also have to be a local resident.
5. Rent to buy tenancies
In a rent to buy tenancy, you sign up to live in a property and pay a reduced rate of rent (usually about 20% less) for a fixed amount of time (usually five years). You’re expected to save up the extra money to use as a deposit to buy the property at the end of your tenancy.
While you’re researching these schemes, it’s also worth finding out if your local authority prioritises certain groups. In Scotland, for example, people on a low income, people with disabilities, some single-parent families, older people, and people who have been in the armed forces may have priority for shared ownership first homes.
You’ll have less tax to pay
6. Stamp duty relief
Another first-time buyer benefit is that you’ll probably owe much less to the taxman.
Stamp Duty Land Tax is a tax you pay when you buy a house or flat, on top of the amount you pay for the property itself. But before you panic, remember that it’s not a flat rate for everybody.
If you’re not a first-time buyer, you have to pay stamp duty on the part of your property that’s worth over £125,000. But, if this is your first step on the housing ladder, you don’t have to pay stamp duty on anything up to £300,000.
So, if you were to buy a home for £320,000 as a first-time buyer, you’d have to pay 5% tax on £20,000 – a total of £1,000.
If you were to buy the same home as someone with an existing property, you’d pay 2% on the portion between £125,000 and £250,000 (£2,500) and then 5% on the portion above £250,000 (£3,500) – a total tax bill of £6,000.
Although the rates of Land and Buildings Transaction Tax (the Scottish equivalent of stamp duty) are slightly different, they still kick in at a higher threshold for first-time buyers than for someone selling their home.
You can supercharge your savings
7. The Lifetime Individual Savings Account (LISA)
If you want to buy a house, you have to have some savings. First-time buyers have an advantage here as well. With a certain kind of savings account, the government will top-up the money you put away every year.
You can open a Lifetime ISA at any time between the ages of 18 and 39. After that, you can save up to £4,000 per year, and the government will add 25%. Potentially, you’re looking at a £1,000 bonus every year until you’re 50. Plus, because it’s an ISA, you won’t have to pay any tax on the interest your savings make, so you should hopefully see your house fund grow faster.
You’re eligible for some great mortgage deals
8. The mortgage guarantee scheme
While the mortgage guarantee scheme is technically a benefit for the lender, not the buyer, its introduction has meant more options for first-time buyer mortgages and that lenders are giving more competitive rates.
Also known as the 95% mortgage scheme, this is the government’s way of making it less risky for mortgage lenders to offer 5% mortgages to first time buyers who haven’t been able to save a large deposit. If the lender wants, they can buy a guarantee for your mortgage. Then, if the worst happens and you can’t keep up your repayments, they’ll get back most of the money they gave you.
Take the next step…
Buying your first home will always be a big step, but there are plenty of options to make it more achievable.
And, if you want an expert in your corner until you get those keys, Habito can help. Our mortgage advisors can answer your questions, point you in the direction of schemes you’re eligible for, and help you find the best deal for your first-time-buyer mortgage.