First-time buyer schemes: five ways to get on the property ladder
Here's a rundown of the key schemes designed to support first-time buyers.
The lifetime Isa
Launched in 2017, this is a savings account designed to assist with purchasing your first home or securing funds for later life. It allows savers to pay in up to £4,000 annually before they reach the age of 50. A notable advantage is that the government provides a 25 per cent bonus, capping at £1,000 a year. To open one, you must be between 18 and 40 years old.
, which may prove a challenge in some parts of the country. Savers who withdraw their money to spend on a property above the valuation limit face a 25% charge for an unauthorised withdrawal. This charge is designed to recover the government bonus but it also controversially takes some of the original investment.
Shared ownership
You purchase a share of a newly built or existing property, normally between 25% to 75%, and make monthly rent payments for the remainder. Additionally, as a flat owner, you will be liable for a service charge to cover upkeep expenses.
You'll only require a mortgage for the portion of the property you're purchasing, so the deposit and loan will be smaller than those for a conventional house purchase. The rent you pay will be lower than the market rate, around 2.75% of the value of the share the landlord owns annually; however, you should consider possible future increases in rent.
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A major benefit is that you have the option to purchase further shares – up to 100% ownership in most cases – if desired. This is referred to as staircasing.
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Rent to buy
In England, prospective tenants can rent a property at a discounted rate of 20% below the local market rent. This can help them gather the funds for a deposit. To qualify, you must be in employment, be a first-time buyer, and also be in a position to pay the rent and set aside money for a deposit simultaneously.
The preliminary rental contract will initially be for a maximum of two years; however, it could potentially be extended if additional time is required to accumulate the necessary funds for the deposit.
Tenants can purchase their own home once they have amassed sufficient funds for a deposit and can secure a mortgage.
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Habitat for Humanity, a private company, collaborates with local authorities and housing providers in England specifically to help individuals through a housing scheme. In return for renting from them, the residents pay a lower rent over a period that can last between five and 20 years, giving them the opportunity to save for a deposit.
London living rent
This is the capital's equivalent of rent-to-buy schemes. To meet the eligibility criteria, applicants must reside or work in London, occupy private rented accommodation (or have some other type of formal tenancy arrangement) or live with friends or family members. They must also have a maximum household income of £60,000 and not currently own a home.
They cannot purchase property where they reside, nor acquire any kind of shared ownership in the location either.
The rent you pay will depend on where you live, but in London, for example, renters typically pay around £1,240 per month for a two-bedroom property.
The discounted rates in question have made these properties extremely sought after, resulting in them being frequently snapped up immediately. Generally, tenancies are only offered for a minimum term of three years, with owners also making residents aware of a growing preference for them to purchase the property within a decade.
As of writing, rental flats in London being advertised included newly built homes in Barking, eastern London, where the monthly rent begins at £1,154 for a one-bedroom flat, rising to £1,400 for a three-bedroom flat. By way of comparison, one three-bedroom flat in the area advertised on Rightmove was priced at £1,650 per month, but most were upwards of £2,000.
First Homes
Only available in England, should you be a first-time buyer, it's possible you may be able to purchase a property at a price 30-50% lower than its market value. It's different from shared ownership, as there's no rent to pay.
You can also explore available properties within your area that are being advertised by developers and estate agents participating in the disposal of shared equity schemes. When it comes to developer-sold properties, a discount of at least 30% off the market value is usually applied to the price.
To be eligible for this property scheme, the home must be a brand new property or one purchased through an estate agent, which a previous buyer has bought via the same scheme. In order to qualify, your annual income cannot exceed £80,000 prior to tax, which increases to £90,000 in the London area. If you're buying with someone else, you must both be purchasing a property for the first time and your combined income must be no higher than £80,000. Councils may impose extra conditions.
New-build First Homes are not permitted to cost over £250,000 nationally, or more than £420,000 in London, after the discount has been applied.
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