Updated: Nov 23
With a wide range of mortgage & purchase options available, it can be difficult to know which is the right choice for you – especially if this is your first purchase too. To make your life easier we have put together this article that sheds light on different types of purchase schemes so you can establish the right one for you.
With the demise of the government backed Help to Buy (HTB) scheme in sight, the Home Builders Federation took proactive measures and launched their Deposit Unlock scheme in November 2021. Aimed at assisting First Time Buyers to take their first big step onto the property ladder as well as enabling existing homeowners to move up a gear on theirs, it provides access to new build properties with as little as a 5% deposit.
When you purchase your home, the building developer contributes to an insurance policy that covers your mortgage provider in case of losses due to potential defaults. This protective measure allows you to access lower rates on 95% mortgages compared to what you would typically receive.
At the time of writing there are three lenders participating in the scheme. However, it is expected that many more will follow in 2023, which will be very much welcomed following the removal of the HTB scheme.
With just 5% deposit you could purchase a property up to the value of £833,250, subject to status of course! Your first step should be to establish how much you can borrow, the easiest way of securing that figure will be via a mortgage broker as they will understand which lenders are participating in the scheme as well as being familiar with their affordability process.
There are a number of builders now participating in the scheme and more can easily sign up if they haven’t already done so.
With the average price of property in the UK reaching £296,000* in October 2022 you may be finding it hard to take your first step onto the property ladder. Shared Ownership is a government led initiative that has been around for years and is in place to help if you are struggling to save enough deposit or cannot afford mortgage repayments for a suitable home.
*Office For National Statistics In short, you take out a mortgage on a share of a property’s value. The value that you purchase will typically be anywhere between 25% and 75%. You then pay rent to the landlord, which is usually the Local Council or a housing association, for the remaining share. As a general point of reference, the lower the percentage being purchased the higher your monthly rental payment will be.
In addition to rent, as all properties being sold under a shared ownership are leasehold, there will often be additional costs towards the upkeep of the building and communal grounds, these would be marked as ground rent and service charges.
You will have the option to purchase additional shares in the future – this is known as ‘staircasing’.
With shared ownership you have the option to purchase new build properties as well as existing homes being sold under the scheme.
Like with all mortgages there will be limitations on how much you can borrow. As such the amount of rent you need to pay on the remaining share will determine your overall affordability. It is therefore important to reach out to a mortgage broker as soon as possible as they will help you establish your borrowing capacity as well as helping you secure a mortgage Agreement in Principle.
It is also important to understand that not all lenders offer mortgages on shared ownership properties.
First Homes Scheme
The First Homes Scheme is only available to first time buyers on properties being sold in England. Qualifying properties are sold for 30% to 50% less than their market value. The property can be newly built by a developer or a home being sold by someone who originally used the scheme to purchase the property.
In order for you to qualify for the scheme you must be 18 or older, a first time buyer, in a position to secure a mortgage for at least half its value and not in receipt of annual household income of greater than £80,000, £90,000 if living in London. Your Local Council may also set further eligibility conditions. For example they may decide to prioritise discounts to key workers, lower income households or people who already reside in the area.
With the First Homes scheme, you could be looking at a maximum discounted rate of up to £420,000 in London or even as low as £250,000 everywhere else. Note that the price cap applies after the discount is applied – so a house that might sell for £500,000 outside London could conceivably be offered for sale at £250,000.
To ensure the sustainability of discounted homes, all subsequent buyers will receive the same percentage discount as first buyers. This differs from past practices like ‘right to buy’ council houses that enabled a few owners to profit while eliminating thousands of formerly affordable housing options for new purchasers. The scheme also binds sellers when it’s time to sell their First Homes home – they must redistribute whatever initial savings were granted and abide by current eligibility requirements at the moment of sale.
If a homeowner is unable to sell their First Homes property within the stipulated six months, they may be eligible for selling it on the open market – but at an additional cost. Thankfully, due to high demand for affordable housing options, such scenarios are largely unlikely.
The Mortgage Guarantee Scheme
The mortgage guarantee scheme was launched back in April 2021 and currently runs to 31st December 2023. It is designed to help supply of government backed mortgages with as little as a 5% deposit.
The guarantee compensates mortgage lenders for a portion of net losses suffered in the event of repossession. The guarantee applies to 80% of the purchase value of the guaranteed property, covering 95% of these net losses. The lender therefore retains a 5% risk in the portion of losses covered by the guarantee. This ensures that the lender retains some risk in every loan they arrange.
Lifetime Individual Savings Account (LISA)
Using a LISA is a great way for you to save towards purchasing your first property. This can also be used to save for later life. If you take out a LISA, the government will give you a bonus worth 25% of what you pay in, up to a set limit, every tax year.
There are a few conditions attached to a LISA, such as:
Only available to UK residents
You must be a first time buyer, so never owned a property anywhere in the world
You can put in a maximum of £4,000 each year
Only available between the ages of 18 – 40 years
You cannot buy a home over £450,000
Also, the amount that you pay in is linked to your annual ISA allowance which in 2023/24 is £20,000.
Forces Help to Buy Scheme
The Forces Help to Buy scheme is now here to stay and is designed to provide forces personnel with a helping hand into property ownership. This scheme provides Regular Serving Personnel with an interest free loan of up to 50% of annual income up to a maximum of £25,000. The advance is interest free, repayable over a maximum of ten years and is open to most regular personnel with more than 12 months’ service.
The advance can go towards the essential costs associated with purchasing your first home, such as a deposit, legal and estate agent fees; or alternatively provide financial support for adapting an existing property in order to meet changing family needs.
Check out the government site OwnYourHome for full details on the various schemes currently on offer to help find the right one for you. With such a range of house purchase schemes available, buying your dream home can be within reach. However, navigating the options and understanding what’s right for you isn’t always straightforward – so enlisting professional help from an experienced mortgage broker is essential to ensure that all decisions are made with proper insight and knowledge.