Soaring property prices and stringent lending criteria have given first time buyers a rough ride in recent times. But with the pace of house price rises slowing and an increased number of 95% loan-to-value mortgages available, the dream of getting a foot on the housing ladder is once again becoming a reality.
There are currently 287 95% mortgages to choose from, compared with just 59 in 2012. Rates are low, starting at just 2.85% fixed for two years with a £250 fee (Hanley Economic Building Society).
Lenders also seem more open to first time buyers, with around two thirds of applications being accepted in the first quarter of 2017. According to the Intermediary Mortgage Lenders Association, this figure was less than half in 2016.
A number of new and existing schemes are also helping first time buyers realise their goals.
Help to Buy ISA
Help to Buy ISAs are available to first time buyers aged 16 or over only. You can open an account up until December 2019 and you’ll then be able to claim your bonus if you use your savings towards a deposit up until 2030.
The ISA allows you to save up to £1,200 in your first month, then up to £200 each month after that.
The Government tops up your savings by 25%, but only when you exchange contracts. You won’t therefore earn any interest on the Government bonus.
You can claim up to £3,000 extra (on savings of £12,000) and if you’re a first time buyer couple, this means a potential bonus of £6,000. You’ll also get interest on your savings, with Barclays offering the current best buy at 2.27%.
You’ll need at least £1,600 saved to be able to claim a bonus and the property you purchase must cost less than £250,000 (£450,000 in London). If you buy a shared ownership property, the total property price must be less than £250,000 (£450,000 in London), not just the price of the share you are purchasing.
Lifetime ISA (LISA)
The new Lifetime ISA (LISA) was launched in April and offers an alternative to the Help to Buy ISA. There are some key differences – these include:
You must be 18+ and under 40 to open a LISA.
You can use the LISA either to purchase your first home or as a pension.
The Government bonus is paid annually for the first year and monthly thereafter (so you earn interest on the bonus).
There’s a 25% penalty if you withdraw your money after the first year for anything other than your first home purchase or a pension.
You can invest up to £4,000 a year in the LISA at any point during the year.
The maximum potential bonus is a generous £32,000.
You can invest in a cash LISA or stocks and shares LISA although the latter is unlikely to be suitable if you intend to purchase your home in the near future.
LISAs count towards your overall ISA limit (currently £20,000 for 2017/18) but you can also invest in a cash ISA, stocks and shares ISA or innovative finance ISA in the same tax year.
You can withdraw the money (for a first time home purchase or as your pension) after one year.
You can use the LISA to purchase a property valued up to £450,000, wherever you are in the country.
There are currently just a few providers offering LISAs.
Help to Buy
The Government’s Help to Buy equity loan scheme is still going strong, providing up to 20% of the price of new build properties (40% in the Capital). This is done by way of an interest free loan for five years. You’ll need a 5% deposit to participate in the scheme and you’ll take out a mortgage for the balance of 75% (55% in the Capital). Before using the scheme it is worth looking carefully at the loan rate from year six onwards to ensure you can meet the commitment.
Shared ownership schemes allow you to buy a share in a property and rent the remaining part until you can afford to increase your share. The scheme gives you the benefits of home ownership without needing a large mortgage. The downside is that each time you want to increase your share, you must have the property valued – and when you sell the property, unless you own a 100% stake, you will only keep any increase in price on the share that you own.
Shared ownership schemes are usually run by Housing Associations. You’ll be eligible to take part if your household earns up to £80,000 a year (up to £90,000 in the Capital), you’re a first-time buyer or you used to own a home but can’t afford to buy one now.