The Help to Buy equity loan scheme closed to new applications in 2023, but it was far from the only government support available to first time buyers. Several other schemes remain open and can make a significant difference to your ability to get on the property ladder. Here is a guide to the main options currently available in the UK.
First Homes
The First Homes scheme offers new build properties to first time buyers at a discount of at least 30 percent compared to the market value. Some local authorities increase this discount to 40 or even 50 percent. To qualify, you must be a first time buyer, at least 18 years old, and have a combined household income of no more than 80,000 pounds, or 90,000 pounds in London. The property must be purchased with a mortgage of at least 50 percent of the discounted price.
The discount is locked into the property in perpetuity through a legal restriction on the title. This means that when you come to sell, you must sell at the same percentage discount below market value to another eligible first time buyer. While this limits your potential profit, it ensures the homes remain affordable for future generations. First Homes are delivered as part of new housing developments, with local councils determining where they are built and the level of discount applied.
Shared Ownership
Shared Ownership allows you to buy a share of a property, typically between 25 and 75 percent, and pay rent on the remaining share to a housing association. This significantly reduces the deposit and mortgage you need compared to buying outright. For example, if a property is worth 250,000 pounds and you buy a 25 percent share, you only need a deposit and mortgage based on 62,500 pounds.
Over time, you can buy additional shares in the property through a process called staircasing, eventually owning it outright if you wish. The rent on the housing association's share is typically set at 2.75 percent of the value of their share per year, and is reviewed annually. Shared Ownership is available to households with a combined income of 80,000 pounds or less, or 90,000 pounds in London. Recent reforms have made the scheme more flexible, including allowing staircasing in increments of as little as one percent.
Lifetime ISA
The Lifetime ISA is a savings account that gives you a 25 percent bonus from the government on your contributions, up to a maximum of 1,000 pounds per year on contributions of up to 4,000 pounds. You must be aged between 18 and 39 to open one, and you can continue contributing until you turn 50. The bonus can be used towards the deposit on your first home, provided the property costs 450,000 pounds or less.
The Lifetime ISA is one of the most generous savings incentives available to first time buyers. If you contribute the maximum 4,000 pounds each year for five years, you will have 20,000 pounds in savings plus 5,000 pounds in government bonuses, giving you 25,000 pounds towards your deposit. The account can be held in cash or invested in stocks and shares. Be aware that withdrawing money for any purpose other than buying your first home or retirement incurs a 25 percent penalty, which effectively means you lose some of your own money as well as the bonus.
Mortgage Guarantee Scheme
The Mortgage Guarantee Scheme encourages lenders to offer mortgages to buyers with a deposit of just 5 percent by providing a government guarantee on the portion of the loan between 80 and 95 percent loan-to-value. This is not a direct subsidy to buyers, but it has significantly increased the availability of 95 percent mortgages from major lenders, making it easier for first time buyers who struggle to save a large deposit.
The scheme is available on properties worth up to 600,000 pounds and is not restricted to first time buyers, although they are the primary beneficiaries. You apply through participating lenders in the normal way, and you may not even be aware that the scheme is being used as it operates behind the scenes between the lender and the government.
Right to Buy
If you are a council tenant in England, the Right to Buy scheme allows you to purchase your council home at a significant discount. The discount depends on how long you have been a tenant, the type of property, and its location. The maximum discount is currently 87,200 pounds across England, or 116,200 pounds in London. To qualify, you must have been a public sector tenant for at least three years.
Right to Buy can represent an exceptional opportunity, with some tenants able to buy their home at a fraction of its market value. However, you should consider whether you can afford the ongoing costs of homeownership including maintenance, insurance, and any service charges if the property is a flat. There are also restrictions on reselling the property within the first five years, and your council may have the right to buy it back.
Help to Build and Armed Forces Help to Buy
The Help to Build equity loan scheme is designed for people who want to build their own home. It works similarly to the former Help to Buy equity loan, providing a government loan of 5 to 20 percent of the total land and build costs, or up to 40 percent in London. The loan is interest-free for the first five years, after which interest is charged at 1.75 percent, rising annually by CPI plus one percent. This scheme is particularly useful in areas where self-build plots are available and can be significantly cheaper than buying a completed property.
Members of the Armed Forces can access the Armed Forces Help to Buy scheme, which provides an interest-free loan of up to 25,000 pounds, or 50 percent of their salary, to help with the deposit and associated costs of buying a home. The loan is repaid over ten years through salary deductions. This scheme is available to regular service personnel who have completed their initial phase of training and have at least six months of service remaining.
Each of these schemes has specific eligibility criteria and terms, so it is important to research them thoroughly and take professional advice before committing. A mortgage broker who specialises in first time buyers can help you understand which schemes you qualify for and how to combine them most effectively with the right mortgage product.