All the help for first-time buyers – and what’s best for you

First-time buyers will have to wait until next year to take advantage of the Government’s Your First Home scheme, which could see them secure a home with just a 2.5 per cent deposit. Billed as a way to help prospective buyers get onto the property ladder, it is expected to be a popular incentive. However, for those looking to buy in the meantime, there are a number of other schemes available. We take a look at what help is on the market with experts revealing the pros and cons of each policy. Your First Home In a bid to tackle housing affordability, Labour are launching the scheme which will see first-time buyers be able to buy a new-build property with a small deposit, backed by a 20 per cent equity loan. Housing developers will be contributing to the funding of the scheme, which will have an earnings cap of £140,000 in London and £110,000 outside the capital. Experts say that whilst incentives to help people onto the ladder are good, such a small deposit could mean buyers are relying on borrowing for almost the entire value of the home and could have limited savings to fall back on. David Hollingworth, associate director of communications at L&C Mortgages, said until the scheme launches, first-time buyer activity may stall as people wait for Your First Home to become available. “Those that are able to proceed without using the scheme are likely to carry on, but there’s bound to be indecision for some who will wonder if the scheme might offer them a better option,” he said. Lifetime and first-time buyer ISA The Lifetime ISA is a savings product that allows people to receive a 25 per cent bonus on their savings up to £1,000 per tax year. People can save up to £4,000 into their ISA towards their first home or their retirement with the bonus paid into the account monthly. However, savers face a 25 per cent withdrawal penalty if they do not use their LISA to buy their first home or to fund their retirement. Previously, people were also hit with the 25 per cent penalty if the home they were purchasing exceeded the £450,000 price cap, but in the Budget it was announced the penalty would be reduced to 20 per cent. The Government also confirmed first-time buyers will have access to a new savings product called the first-time buyer ISA from April 2029. It will replace the existing LISA for new savers and will allow them to save up to £4,000 a year with a 25 per cent government bonus that will be paid upon withdrawal towards a home worth up to £450,000, with the maximum value of the bonus capped at £20,000. Existing LISA holders will be able to continue contributing to their accounts. Shared ownership People buying through shared ownership purchase a share of the property’s value, usually between 25 and 75 per cent, and then pay the rest in rent, as well as a monthly service charge and ground rent. Those using shared ownership can “staircase”, buying more of their property as and when they can afford to. Whilst a way onto the ladder, there can be difficulties. Jonathan Rolande, a professional property buyer and housing commentator, said: “Unlike a standard tenancy, repairs are the buyer’s responsibility. Resale of a shared ownership property can also be slow because the potential pool of buyers is reduced to only those happy with the set-up.” There are often fewer mortgage options available to those buying this way with higher interest rates. Help for key workers Housebuilder David Wilson Homes offers either £500 or £1,000 towards a key worker’s deposit for every £20,000 spent on the purchase price, up to a maximum of £25,000. For a home costing £300,000, buyers could qualify for a contribution of £15,000. Whilst it could be ideal for people who need to live in the local area for their job as a key worker, such as hospital staff, Rolande said buyers should check the price is fair, comparing similar properties. Low-deposit schemes offered by developers Many developers offer help towards people’s deposits. For those who have already managed to save part of their deposit, Dandara offers help with a contribution of up to 5 per cent towards the amount needed to secure a new home. Nimesh Shah, chief executive of Blick Rothenberg, said: “This is helpful for buyers who have saved most of their deposit but need to bridge the final gap. The key is to check how the lender treats the 5 per cent deposit contribution and whether the overall purchase price remains competitive.” But Rolande added buyers should not be tempted to stretch for a bigger home than they can afford. “Base your budget on what you can borrow and repay if interest rates rise, not just on what the builder will add,” he said. Developers Barratt Redrow also offer help to people with small deposits onto the property ladder with just a 5 per cent deposit and a 15 per cent equity loan. This means buyers only need to secure a mortgage for 80 per cent of the property value. The scheme is available on selected new homes in England and Wales up to a value of £660,000 and can be used by both first-time buyers and existing homeowners. The 15 per cent equity loan comes with a fixed interest rate of 4 per cent for the entire term. Rolande said needing just a 5 per cent deposit is good for those buying in cities who are battling with high living costs but the other costs associated need to be considered carefully. “It’s important to ask if there are redemption fees and is the property as valuable to a subsequent buyer who cannot use the scheme to make their purchase.” New-build properties can also lose their value quickly after purchase and run the risk of being in negative equity – where the amount you owe your lender is more than the value of your property. Prospective buyers will need to speak to a regulated mortgage broker to access this scheme.