With some experts predicting house prices will fall by as much as 10% to 15% this year, you could be in a good position to negotiate hard if you’re a first-time buyer. Here, we look at how to access all the help available to boost your deposit and find a mortgage you can manage
According to UK Finance’s latest Mortgage Trends, there were 35,500 new first-time buyer mortgages completed in August 2018 (the latest figures available) – its highest level since June 2017. That’s encouraging news for anyone thinking about taking their first steps on the property ladder.
First-time buyers can benefit from schemes to encourage homeownership. With Help to Buy (H2B) Isas, the government will top up your savings by 25% (up to £3,000), which you don’t have to pay back. However, there are drawbacks: the purchase price of your property cannot be more than £250,000 (or £450,000 in London); it must also be the only property you own and where you plan to live.
Your first payment into your H2B Isa can be up to £1,200 and then you can pay up to £200 each month. One drawback with this type of Isa is that you can’t use it to pay for the deposit of your first home: your solicitor or conveyancer will apply for the extra 25% on completion of your property transaction.
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H2B Isas are available from Aldermore Bank, Bank of Scotland, Barclays, Clydesdale Bank, Halifax, HSBC, Lloyds Bank, Nationwide, NatWest, Newcastle BS, Santander, Ulster Bank, Virgin Money and Yorkshire Bank.
Savers also have the choice of a Lifetime Isa (Lisa), and can move their existing H2B Isa to a Lisa. The Lisa allows a maximum contribution of £4,000 a year with a government bonus of up to £1,000 a year on top of this – as compared to a total bonus of £3,000 with an H2B Isa.
Savers under the age of 60 must use the cash to buy a first property worth up to £450,000. Given that the average deposit in the UK outside London is £20,000, according to Nationwide, a first-time buyer saving £4,000 a year could save enough in just five years. However, the Lisa has a sting in the tail when it comes to exit fees, which H2B Isa savers don’t face.
At the time of writing (December 2018), there are just three cash providers. Newcastle BS offers the top cash rate at 1.1% tax free/AER, while Skipton BS and Nottingham BS both offer a disappointing 1% – and you currently have to sign up in a branch for Nottingham BS’s Lisa.
There are also stocks and shares Lisa providers with varying fees and annual management charges, which require minimum investments ranging from £100 to £500. These include AJ Bell, Foresters Friendly Society, Hargreaves Lansdown, Moneybox, Nutmeg, OneFamily and The Share Centre.
But the future of Lisas could be under threat after last summer the Treasury Committee called for them to be scrapped due to their “perverse incentives and complexities”.
Tom Selby, a senior analyst at AJ Bell, explains: “If someone contributes the maximum £4,000 over 10 years [into an investment Lisa], they will have invested £40,000 in total. This will have been topped up with £10,000 of government bonuses to give a total investment of £50,000,” he explains.
“If this grows at 5% a year, after charges the fund will be worth £65,956. If the investor takes that money out before age 60, is in good health and does not use it to buy a house, the 25% exit charge would be a whacking £16,489.”
There were 35,500 new first-time buyer mortgages completed in August 2018
Help to Buy equity loan
With a Help to Buy equity loan, the government will lend first-time buyers and home movers up to 20% (40% in London) of the cost of a new-build home worth up to £600,000 in England. You’ll need a minimum cash deposit of 5% and a 75% mortgage, and you won’t be charged interest on the loan for five years.
Help to Buy Wales runs a similar scheme for new-build homes up to £300,000.
Scottish buyers can apply to the Help to Buy (Scotland) Affordable New Build and Help to Buy (Scotland) Smaller Developers Scheme for homes up to £200,000 for the financial years 2018-19, 2019-20 and 2020-21. The Scottish government will take an equity stake of up to 15% of the value of the property.
There is no equity loan scheme in Northern Ireland.
Visit Helptobuy.gov.uk, Helptobuywales.co.uk or Beta.gov.scot/policies/homebuying for further details.
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Shared ownership offers you the chance to buy a stake in a property owned by a housing association or private developer in England. You will need to be eligible for a mortgage on your share of the property, which is generally 25% to 75% of its value, and pay a discounted rent on the remaining share. To be eligible, your household earnings must not exceed £80,000 a year (£90,000 in London).
You can gradually increase your ownership by buying shares from the housing association, known as ‘staircasing’, but if property prices rise your new share will cost more.
If you are aged 55 or over, you can buy a share of up to 75% with the Older People’s Share Ownership scheme in England, at which point you will pay no rent on the remaining 25%.
In Northern Ireland, a Co-Ownership scheme enables buyers to buy between 50% and 90% of a property up to £165,000 and pay rent on the remainder.
Visit Helptobuy.gov.uk/shared-ownership or Co-ownership.org.
Scotland’s Open Market Shared Equity scheme helps people buy a home on the open market with price limits depending on the area, while its New Supply Shared Equity scheme helps with purchases of new-build homes. For more information, visit Mygov.scot/open-market-shared-equity-scheme.
Shared Ownership – Wales allows you to buy between 25% and 75% of the value of your chosen property with a repayment mortgage. Visit Beta.gov.wales/shared-ownership-wales.
Since October’s Budget, first-time buyers in shared ownership homes in England and Northern Ireland don’t have to pay stamp duty on the first £300,000 of properties costing up to £500,000, putting them in line with other first-time buyers.
“You will fare better if you put down a bigger deposit”
Right to Buy
The government’s Right to Buy scheme offers a discount of up to £80,900 (£108,000 in London) to council tenants in England who want to buy their council house and have lived in social housing for at least three years.
However, Right to Buy is no longer available in Scotland, and the scheme in Wales – which has a discount of up to £8,000 – ends on 26 January 2019.
In Northern Ireland, the maximum discount is £24,000 for tenants who have lived in their council home for more than five years.
Visit Righttobuy.communities.gov.uk or Housingadviceni.org/right-buy.
If you don’t have enough money to buy outright but have lived for more than five years in a housing association or local authority property in England only, you may be able to buy a minimum 25% share of your home through Social HomeBuy.
You could receive a maximum discount of between £9,000 and £16,000, depending on the share you buy and the property’s location, and the landlord will reduce your rent accordingly. Contact your local council to see if it runs the scheme.
If you’re aged between 23 and 40, a first-time buyer, and have a maximum household income of £80,000 (£90,000 in London), the government’s Starter Home scheme will allow you to buy a new-build home with at least 20% off the market price.
The discounted price must be less than £250,000 nationwide and £450,000 in London. To register your interest, visit Ownyourhome.gov.uk/scheme/starter-homes.
First-time buyers who get parental help could buy 2.6 years earlier
Help from Mum and Dad
More than a third of first-time buyers in England need a family gift or loan to help them buy their home compared to 20% seven years ago.
The 2017 study by the Social Mobility Commission also revealed that first-time buyers who receive money or a loan from their parents could buy 2.6 years earlier in the UK and 4.6 years earlier in London than those who don’t have parental support.
Guarantor mortgages, where a parent’s income is considered, are fairly niche now. Lenders, such as Barclays and Family BS, offer guarantor mortgages, for example, if an applicant can prove they can afford the repayments or that their earnings are likely to grow in the future – as would be the case with a trainee lawyer or doctor.
But another option is a mortgage where parents or close relatives can offset some of their savings as a security for the deposit or offer collateral from their own property.
Barclays Family Springboard mortgage allows anyone to help you with a mortgage of up to £500,000 on a property in the UK (except for new-builds) if they lock away 10% of the purchase price in cash. Keep up the repayments, and ‘helpers’ get their savings back after three years with interest (currently 2.25%). Helpers are named on the mortgage but not on the property title, so they won’t pay stamp duty.
Similarly, the Family Building Society offers a Family Mortgage, which can be secured with a 95% loan-to-value (LTV), and family members can secure a lower interest rate for the buyer by using their own savings or property as security.
Bath Building Society’s Parent Assisted Mortgage Scheme will consider the applicant’s income (which must be at least £20,000) and some security from a parent’s property.
Some lenders allow buyers to include the rent from letting out a room in their mortgage calculations. Bath’s Rent a Room Mortgage considers the potential rent from one tenant, while Market Harborough’s Family Assisted 100% LTV mortgage works in a similar way, with consent for rent from up to two rooms.
If you’re off to university, both Loughborough and Bath building societies offer Buy for Uni mortgages that factor in potential rental income, as well as security from parents or close relatives.
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Another way parents can help is to take out a joint mortgage with their children, owning a share of the property.
David Hollingworth, associate director at L&C Mortgages, explains: “More lenders have shifted away from traditional guarantor mortgages, but would allow parents to go joint on the mortgage. That will achieve the higher borrowing amount, but could result in a capital gains liability, as the parent would typically have to be joint on the ownership of the property. That could also result in being ineligible for first-time buyer stamp duty relief and the stamp duty surcharge of 3% on additional properties applying.
“Some lenders, including Barclays, Post Office and Metro Bank among others, will allow the parent to be joint on the mortgage but the title to be only in the child’s name, which sidesteps that issue,” he adds.
However, if lenders require that parents are named on the property deeds, John Bunker, tax solicitor at Irwin Mitchell, advises caution.
He says: “Where a property is bought jointly by two or more people, if any one of those people has any interest in a second property the 3% extra stamp duty will be payable.
“We recommend that parents consider giving loans to children, rather than taking a share of the equity, which can still be protected on the registered title,” he adds.
Go it alone
If you need a mortgage without parental help, plenty of lenders offer products with a 95% LTV.
Mr Hollingworth says: “Although the very cheapest rates are on offer to those with large deposits, a more competitive mortgage market has seen things develop for first-time buyers with more limited resources. The market for 95% mortgages has remained solid with more lenders entering the sector, and rates are consequently improving. One of the current lowest two-year fixed rates at 95% LTV is available from Skipton Building Society at 2.82% with a £795 fee.
“Although high LTV rates are more widely available now than they were, borrowers will still fare better if they put down a bigger deposit. For example, stretching to a 10% deposit could potentially cut 1% or more off the interest rate. In relation to this, HSBC currently offers a rate of 1.79% to 90% LTV with a £999 fee.
“Like any borrower, it is important for first-time buyers to consider fees as the lowest rates can come with bigger fees. There’s a good range of product options now, and some will offer other incentives for first-time buyers, such as free valuation or cashback. It can therefore pay to look at overall value rather than focus too heavily on rate.”
“Without Help to Buy, we would have had to wait a lot longer to buy a property”
“We were lucky enough to snap up the last property of the day”
First-time buyers Kate Whelan, 24, and her partner, Ted Nimbe, 25 (pictured above), have bought a two-bedroom apartment at Hazlemere Marina, in Waltham Abbey, Essex.
The couple bought the £309,999 apartment with a £15,000 deposit, using the government’s Help to Buy equity loan scheme. The development of apartments and houses by Bellway Homes is located on the banks of the River Lee.
“It was actually my mum who came across the open day online,” says Kate. “It was our first time visiting a new homes development, and we only planned to have a browse and see what was on offer.
“We were amazed to find out that people had been camping out over three nights to secure a home. After waiting for four hours, we bought the last remaining property overlooking the river.
“One of our favourite things about living here is the strong sense of community. When we moved in, we had a joint house warming with our neighbours who we had met at the launch, and now we are all great friends.”
Kate adds: “Without Help to Buy, we would have had to wait a lot longer to buy a property and to have moved quite far away to find a home we could afford.”
- Home & mortgage