First-Time Buyer Schemes: The Complete Guide
Generation Rent is the new normal for many Brits who have never owned their own home. Fortunately, the government offers a range of first-time buyer schemes to help get you on the property ladder. In our guide, we go through how they work so you can find the best first-time buyer scheme for you!
What Is a First-Time Buyer Scheme?
In a world where house prices are extortionately high, many people feel like they are priced out of the housing market. Nowadays, people look at buying a house as an impossibility as they can barely afford the huge down payments they are paying for when getting a mortgage. A first-time buyer scheme is aimed at helping people who want to get their foot on the ladder to owning their own home!
Who Is Eligible for a First-Time Buyer Scheme?
The most important part of any first-time buyer scheme is that you can’t have bought a home before. This also means that people who have owned a property previously won’t be considered first-time buyers even if they’ve never bought a house before. The question of who is a first-time buyer can be complicated, but here’s a quick checklist for you to know your situation:
A first-time buyer usually is someone who:
- Never owned a house before
- Owned a commercial property but not a residential property
- Applying for a joint mortgage but no one has owned a property before
You generally won’t be considered a first-time buyer if you’re someone who has:
- Owned and sold a property
- Inherited a property
- Joint owned a property
- A spouse who has owned a property
So if you’ve been renting all your life, you will most likely be eligible for a first-time buyer scheme.
How Does a First-Time Buyer Scheme Work?
First-time buyer schemes vary according to the type of first-time buyer you are. Depending on what your financial situation may be, how much you pay and what help you get will differ. Generally however, first-time buyers usually can expect a discount both the house’s market value and a cheaper deposit for their mortgage.
The type of first-time buyer schemes also vary depending on where you live in the UK. There are separate schemes available for England, Scotland, Wales and Northern Ireland and they are not available in all parts of the UK.
How Much Deposit Do First-Time Buyers Need?
Since the financial crash in 2008, mortgages with low deposits have become difficult to come by. Also, with house prices extremely high, even paying 10% for a down payment is more money than most people have in their bank accounts. For a house worth £125,000, you’d still need to have £12,500 plus extra for all the other fees to be able to get started.
On a first-time buyer scheme however, you’re usually expected only to pay around 5% deposit. Even though this is still a lot with all the other fees, it’s a lot more manageable for people wanting to get their foot in the door.
What’s the Right to Buy? Right to buy is a scheme for council house tenants to buy their home at a discounted price. Typically, this discount can be between 35% to 70% of your home’s market value depending on how long you’ve lived there.
To find out more, read our Right to Buy guide!
What First-Time Buyer Schemes Are There?
First-time buyer schemes differ immensely across the UK since there are so many different financial situations and property needs to cover. In addition, not all the schemes are available everywhere in the UK and there are significant differences as you move countries.
Help To Buy Schemes
Help To Buy schemes used to be widely available in the UK but now they are only available in Wales.
The Help To Buy scheme allows first-time buyers to purchase their homes at a 5% deposit. In Wales, the maximum you can buy is £250,000 and you need to be able to cover at least 80% in a normal mortgage. The Welsh government will give you an equity loan for 20% of the price.
First Homes Scheme
The First Homes Scheme was launched in 2021 to help first-time buyers and essential workers in England buy their first home with lower incomes. These homes are usually new-builds and will only be eligible if the builder is on the scheme.
The requirements are usually set by your local council and you might need a local connection to be able to use the scheme. With the First Homes Scheme, you could get 30-50% off of the value of the property with a 5% deposit.
In order to qualify for the First Homes Scheme you need to be:
- A first-time buyer or essential worker
- Have an income lower than £80,000 a year
- Able to afford a mortgage for at least 50% of the home
The purchase price can be up to £250,000 in England. If you want to buy a property in London, the maximum is £420,000.
95% Mortgage Guarantee Scheme
The mortgage guarantee scheme is a temporary scheme to help mortgage lenders increase the number of 5% deposit mortgages they have available. Since the financial crisis in 2008 and the COVID pandemic, mortgage lenders have expected high deposits of 10-20% on houses which is almost impossible for a larger number of households to afford.
In the mortgage guarantee scheme, a lender is able to offer a 95% loan-to-value mortgage at least 80% of the loan guaranteed by the government. This helps the lender reduce their risk so they can offer those terms. In order to qualify for a 95% mortgage, you will need to be:
- First-time buyer
- Second-time buyers who are moving and can't afford to
What does loan-to-value mean? You might hear the term loan-to-value a lot when you’re looking into mortgages and it can sound a little confusing. When you take out a mortgage, you will pay for a bit of your house with the deposit and the rest your lender will lend to you. The loan-to-value is simply how much your lender lends you to your house’s value. For example:
If the house price is £250,000 and your deposit is £25,000 (10%), your lender will lend you £225,000 (90%). This means the loan-to-value will be 90%.
Stamp Duty Relief
In England and Northern Ireland, Stamp Duty is a tax you pay when you’re buying a property. Stamp duty usually applies to properties that are over £125,000 and starts at 2%. This percentage increases as the price of the property increases.
For first-time buyers, there is Stamp Duty relief for properties that are £300,000 or less. This means you won’t pay any Stamp Duty when you buy your property. If the property you want is more than £300,000, you will need to pay 5% in Stamp Duty.
How Do I Apply for a First-Time Buyer Scheme?
For most first-time buyer schemes, you don’t apply directly to the government. Instead you will usually need to prove you qualify for a first-time buyer scheme with either your mortgage lender or your local council. In the case of the First Homes scheme, you’ll need to contact a builder who is involved with the scheme before you can apply.
Can I Buy a House on Benefits?
If you’re on benefits, you will still be eligible to get a mortgage on the same terms as someone who doesn’t receive anything. Mortgage lenders must treat you the same way and cannot discriminate against you when it comes to your income. So if you are on universal credit or you receive child benefit, you are able to apply for a mortgage.
Although how you receive your income won’t impact your eligibility for a mortgage, you will still need to have a good credit score in order to apply. This means that you shouldn't have any outstanding debt and have a good history of paying your bills regularly and on time.
