It can be confusing trying to find out what schemes and benefits are available to first-time homebuyers across the UK. Across the country, the average age of the first-time buyer is now 33 before they can afford to put down roots in a home of their own. In London, the number is even higher, with the average age being 35 (source: Property Wire, 17th Sept 2021).

With this in mind, it’s important to best inform first-time buyers around navigating the options on how to realistically finance and purchase their first home. Take a look at the mortgage schemes available and how they differ depending on where you’re planning on buying your home.

first-time investors

Mortgage Guarantee Scheme

The mortgage guarantee scheme was announced by the UK Government on the 3rd March, as part of the 2021 Budget. Mortgages issued under the scheme are backed by the UK Government. This means, if you were unable to pay back what you borrow, the UK Government would financially support the lender to help mitigate any losses.

While 91-95% loan-to-value (LTV) mortgage rates are available, as with all mortgage applications, there are a number of checks lenders consider before they may be able to offer you a mortgage. They have to make sure that your financial and personal circumstances mean you should be in a good position to pay back what you borrow.

Along with the normal mortgage checks, to be eligible, the mortgage must be:

  • for a property valued at no more than £600,000
  • on a property not classed as a new build property
  • a loan-to-value (LTV) of between 91% and 95%
  • a residential mortgage (i.e. not a second home, or buy-to-let property)
  • a repayment mortgage and not an interest-only mortgage
  • taken out by an individual or individuals, not a business

Also, you will be unable to take out any additional borrowing on your mortgage for the next 7 years.

Shared Ownership

If you can’t afford to buy a property outright, Shared Ownership gives you the chance to purchase a percentage of the property instead. You can purchase between 25–75% and pay a low-cost rent on the remaining share you don’t own—the more you own the lower the rent will be.

The scheme is mostly available on new build homes or flats and is ideal for those who may need a bigger property or don’t quite yet have the funds to buy a property outright.

Through a process known as ‘staircasing’, you have the opportunity to buy more shares of the property as and when you can afford to, eventually even owning 100% of the property. Your rent payments will change accordingly and restrictions on subletting are often lifted.

To be eligible, you need to meet the following criteria:

  • your combined income is £80,000 or less (£90,000 in London, £60,000 in Wales)
  • you are not able to afford a suitable home on the open market
  • you are not in mortgage or rent arrears
  • you have a 5–10% deposit for your share of the propert

Help to Buy

Help to Buy schemes (also known as equity loan schemes) assist first-time buyers, or existing homeowners, who wish to purchase a new-build home. The main benefit is that you don’t need to save as much for your deposit. You often need a lower deposit than normal as the Government provides a loan to cover part of the property’s cost, although you will still need a mortgage to cover the rest.

Help to Buy: Equity Loan is available in England to both first-time buyers and homeowners looking to move. It applies to new-build properties worth between £186,100 and £600,000 depending on location and works by reducing the deposit you pay to five per cent of the property’s price. Homebuyers must contribute 80% of the home’s price, for example, with a minimum 5% deposit and up to 75% mortgage. In London, homebuyers must contribute at least 60% of the home’s price.

It offers an interest-free loan from the Government (for the first five years) for up to a further 20 per cent of the property’s value (40% in London). From year six, you will start to pay the £1 management fee, monthly interest fee of 1.75% of the equity loan. The interest loan will then rise each year in April by the CPI (Consumer Price Index) plus 2%. You will continue to pay interest until the loan is repaid in full. From year six, you will start to pay the £1 management fee, monthly interest fee of 1.75% of the equity loan. The interest loan will then rise each year in April by the CPI (Consumer Price Index) plus 2%. You will continue to pay interest until the loan is repaid in full.

Right to Buy

The Right to Buy scheme allows you to buy the home you live in for a discounted cost if you’re a tenant in a council or housing association property.

The scheme is ideal for those who may be on a lower income and want to get on the property ladder. However, Right to Buy ended in 2016 in Scotland and 2019 in Wales on the argument that it reduces the amount of social housing available.

The first thing to consider is your eligibility, you will only be able to take advantage of Right to Buy if:

  • you are a secure tenant
  • the property is your only/main home
  • it is self-contained (all the facilities are within the property)
  • you’ve had a public sector landlord for three years

If you fit the criteria and want to buy the property you live in then a discount will apply to the value of your home. This means borrowing less money through a mortgage when you buy it. The maximum discount available is £84,600 in England and £112,800 in London boroughs.

Rent to Buy/Own

Rent to Buy (or Rent to Own as it’s known in Wales and Northern Ireland) allows you to rent a property for less than the market price, for a set amount of time. You are expected to use the money saved from the lower rent for a deposit to buy the property after the tenancy ends. You can also use the money saved for a deposit towards another property if you prefer.

The scheme is only available on select new build homes and depends on which part of the country the property is located. Since Rent to Buy is only available on a select number of properties from different housing associations, make sure you check the terms of each property and association.

Currently, the way it works is that you rent the property for a period of up to five years at around 20 per cent less than the market rate. Once the five years are up, you can either buy the property outright with a mortgage and deposit or choose to buy a share through Shared Ownership. Alternatively, you can leave the property altogether and use the money saved for a deposit elsewhere.

Key things to note are:

  • your lease can last between six months and five years
  • you can make an offer or commit to shared ownership at any time
  • you will pay approximately 80 per cent of the local market rent
  • your combined income must be £60,000 or less

Guarantor Mortgages

A guarantor mortgage is a home loan where a parent or close family member takes on some of the risk of the mortgage by acting as a guarantor. This usually involves them offering their home or savings as security against the loan, and agreeing to cover the mortgage payments if the homeowner defaults (misses a payment).

Some guarantor mortgages even allow you to borrow 100% of the property’s value by using your parent’s collateral in place of a deposit.  On the plus side, guarantor deals might help you get a mortgage or allow you to borrow more. The main downside is that the guarantor could be liable for any shortfall if your property has to be repossessed and sold.

A guarantor mortgage may suit you if:

  • You’re struggling to save enough for a decent deposit
  • You have little or no credit history, for example if you’re new to the country
  • You have a poor credit score

If you would like to discuss any of the points above, or start to look into mortgage options, our Mortgage Adviser, Alan Ramsden can be contacted on 020 3030 4164 and would be happy to discuss options with you on a call, over video or in person.

Grosvenor Wealth Management’s independent mortgage advice service ensures your mortgage requirements are fully met. Whether you are looking to purchase, re-mortgage or buy an investment property, we are confident we can secure the right arrangement for you.

PLEASE ALWAYS REMEMBER: Your mortgage is a loan secured against your property. Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.

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