Although the increased cost of living is hitting everyone hard, we know there are plenty of First Time Buyers out there capable of meeting mortgage payments, and who are potentially spending a fortune on rent, therefore struggling to save large deposits. Looking for your first home and initially getting your foot on the property ladder is a massive milestone in anyone’s life, but it doesn’t come without a few obstacles along the way. It can be a long and stressful journey. That’s why 80% of people looking for a mortgage seek help from professionals such as ourselves.
The average age of a first-time buyer is currently nearly 34. With the average house price being £223,117 and most lenders expecting a 10% deposit, that’s £22,312 of savings required. However, there are a number of schemes you may not be aware of (detailed below), which are available to assist you if you have a low deposit. We will discuss your needs with you, help you establish if any of these are relevant to you and the best way to proceed, and will source the whole of market for the cheapest deal for you.
Shared Ownership
In this scenario, you purchase part of the property and pay rent on the rest of it. The stake owned will vary depending on the specific property, but it will be between 25% and 75%. As an example, if you bought a 40% share in a property worth £200,000, the value of your share would be £80,000. The rest of the property will be owned by a Housing Association, and who you will then also pay rent to.
Lenders will require you to contribute a certain deposit sum and they will calculate the Loan To Value(LTV) from the value of the share being purchased. E.g., as the value is £80,000 instead of £200,000 for the full property in this example, a 5% deposit would be £4,000 instead of £10,000 so it can help you to buy a property faster!
Typically, you would then pay rent of around 2.75% on top of the mortgage repayments.
There are pros and cons of using the shared ownership scheme and if you want to eventually own 100% of the property, you would need to check “staircasing” is allowed. This allows you to buy bigger stakes in the property up until you own it outright. If you sell a property purchased using shared ownership, any equity would be split by the percentage of stake each owner has. One of the negative aspects of the shared ownership scheme is that it only applies to certain properties, and you might not be able to find a suitable shared ownership property in the area you want to live in.
Helping Hand
Some of the main lenders have introduced schemes to assist First-Time Buyers. For example, Nationwide introduced the ‘Helping Hand Mortgage’.
The Society’s ‘Helping Hand’ gives first-time buyers the option of borrowing more when taking one of their five or ten-year fixed rate mortgages.
It means a first-time buyer couple with a joint income of £50,000 could borrow up to £275,000 rather than the £225,000 they could borrow with a conventional 95% mortgage, assuming no other costs impact their affordability.
Joint Borrower Sole Proprietor (JBSP)
Sometimes referred to as a JBSP mortgage, a joint-borrower-sole-proprietor mortgage allows two or more people to buy a property together but with one person taking ownership. The other applicant/s would be on the mortgage, but not on the deeds.
This type of mortgage can be especially useful for parents or family members who want to help someone else buy a home without taking ownership of the property.
A JBSP mortgage is an alternative to guarantor mortgages. With a JBSP mortgage, parents or family members are not required to provide savings or guarantees for a deposit. And unlike a guarantor mortgage, the income of everyone on the mortgage is considered, but so are the outgoings.
The good news is that more lenders are offering joint-borrower-sole-proprietor mortgages to people who want to combine forces to buy, and the deals come with rates as competitive as standard mortgages.
95% Guarantee Scheme
In April 2021, the UK government introduced a 95% mortgage guarantee to help first-time buyers to purchase their own home. Prior to this, when COVID-19 first struck the U.K. economy, most lenders required a 10% deposit as part of the lending criteria. The scheme works by the government guaranteeing the 95% mortgages, so there is less risk for the lender. Major lenders including HSBC, Barclays, Santander, Lloyds and NatWest have signed up to this scheme.
Most mortgage products outside of the scheme require a minimum of 10% deposit, with some asking for 15% or even 20%. Higher risk borrowers may be required to pay a larger deposit to offset some of the risk.
However, there are a number of lenders who are offering 95% LTV mortgages outside of the scheme, and there are certainly a lot more of these products available following the easing of lockdowns etc.
Help to Buy
The Help to Buy scheme is available to first-time buyers in England who buy a newly built property.
Under the scheme, the buyer must provide a deposit of 5% but can also borrow 20% (40% in London) of the purchase price, which is interest-free for the first five years.
The mortgage will therefore be for 75% of the LTV, with 20% made up from the equity loan and 5% from the deposit. This enables buyers to get accepted for mortgages on properties that would otherwise be above their affordability calculation.
The Help to Buy scheme has helped many first-time buyers to buy a new property without waiting many years to save up a larger deposit. This ends to new applications on 31st October 2022 and HTB ISA’s can no longer be opened.
First Home Scheme
If you are a first-time buyer, you may be able buy a home for 30% to 50% less than its market value. This offer is called the First Homes scheme. The home can be:
