Getting onto the property ladder is harder than ever amid sky-high prices, mortgage rates and rental costs, but support is available for first-time buyers struggling to afford a home.
The "toxic combination" of rising costs facing first-time buyers has forced many to postpone buying a home, said The Money Edit. According to latest data from Halifax, the number of first-time buyers fell by 22% between January and August compared to the same period last year.
The average age of a first-time buyer is now 32, "two years older than a decade ago", the lender reported. And the average deposit is £54,116 – around 19% of the average property price – up from £31,060 in 2013, then around 21% of the purchase price.
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First-time buyers could previously get a government-backed loan worth up to 20% of a property’s value under the Help to Buy Equity Loan scheme, but this closed in March 2023.
But a range of other schemes are still available to help would-be home owners buy their first property.
Launched in 2021, the First Homes scheme allows buyers to purchase certain new-build property developments in England "with 30% to 50% of the market value taken off the price", said Gov.uk.
Buyers will need a mortgage for the rest and councils may prioritise essential workers, people who already live in the area and those on lower incomes.
Would-be buyers should be aware that the price discount remains "attached" to the property when they come to sell, said NerdWallet, which "could limit your profit potential and hamper progress up the property ladder". And the property can only be sold to a buyer who is eligible to buy a First Home.
Mortgage Guarantee Scheme
The Mortgage Guarantee Scheme provides financial guarantees from the government to lenders on mortgages worth 95% loan-to-value (LTV).
These guarantees can be made on homes worth up to £600,000.
The purpose of the scheme, which closes at the end of this year, is to “stimulate lenders to offer 95% LTV deals”, said the HomeOwners Alliance, so it “isn’t something you specifically apply for and you may not know if your lender is using it”.
Buyers can then purchase more shares of the property – known as "staircasing" – to increase the percentage that they own.
Shared ownership helps overcome the "biggest obstacle" facing first-time buyers, said Unbiased, "the need to raise a large enough deposit". But while these schemes offer a "stepping stone" out of renting, buyers are still treated as tenants, the site warned, and can be evicted "on a number of grounds" such as failure to pay rent, nuisance behaviour or sub-letting.
Right to Buy
Council tenants may be able to buy their council home at a discount under the Right to Buy scheme.
People who have lived in their council house for at least three years may be eligible for up to 70% off the purchase price of the property, up to a maximum of £116,200 in London and £87,200 elsewhere in England.
Many lenders will accept this discount as a deposit, so buyers may be able to get a mortgage without saving up. But buyers who sell within five years of buying the property will have to pay back some or all of the discount.
Savings and developer-backed schemes are also available to help would-be buyers boost their deposits.
A Lifetime ISA (LISA) can be opened by savers aged under 40, who can then pay in up to £4,000 each tax year from their annual Isa allowance. The government will add a 25% bonus to these savings, which can be used to purchase a home worth up to £450,000.
The number of people using Lifetime ISAs has "steadily risen each year", said MoneyWeek, although the property price cap has remained despite "soaring house prices".
Some housebuilders offer incentives for first-time buyers to attract interest in their developments. For example, Fairview New Homes has a Save to Buy scheme on selected plots that requires only a 1% deposit, and then charges a fixed monthly cost until the buyer has enough for a mortgage deposit.
Before signing on any dotted line, would-be home owners should "factor in" all the extra costs involved in buying, such as legal and survey fees, advised The Money Edit. Those who decide to go ahead can then make themselves "as attractive as possible" to mortgage lenders by making sure their bank balance is in "good shape".
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