First time buyer schemes: How to buy your first home
The prospect of purchasing a property can be daunting even for the most experienced buyer. If you are looking to purchase your first home, there are several schemes that can help you get your foot on the ladder.
Help to Buy ISA
If you are saving to buy your first home, with the use of a Help to Buy ISA the Government will boost your savings by 25%. With this scheme you can save up to £200 a month, however, in your first month, you can deposit a lump sum of up to £1,200.
The maximum government bonus you can receive is £3,000 and the minimum bonus is £400. This means that you need to have saved at least £1,600 into your ISA before you can claim your bonus and to receive the maximum you must have saved £12,000.
The Help to Buy ISA is available from a range of banks and building societies. These accounts are available to each first time buyer in a single transaction, not per household. This means that if for example you are planning to buy with your partner, you could receive a government bonus of up to £6,000 towards your first home.
When you are close to exchanging on your purchase, your conveyancer will apply for your government bonus. The bonus must be included within the completion funds. The bonus cannot be used for the deposit, legal fees or any other disbursements associated with buying a home.
The deadline for signing up this type of ISA is 30th November 2019.
Help to Buy Loan
This is a loan scheme available to first-time buyers and existing homeowners looking to purchase a new build house. The purchase price must be no more than £600,000. Under this scheme, you can borrow up to 20% of the purchase price interest-free for the first five years as long as you have at least a 5% deposit. After the five years, there will be a fee of 1.75%, which will increase annually if the market value does by an additional 1%. You can choose to make part repayments or make a full repayment before the end of the 5 years. However the minimum part repayment is 10% of the market value at the time.
The property purchased with the Help to Buy Loan must be your main residence and cannot be used for a Buy to Let investment property.
The Help to Buy loan scheme will be extended until 2023. However, this extension will be restricted to first time buyers only.
This scheme enables you to purchase a share in a property from the landlord, who is commonly the council or a housing association, and rent the remaining share. It is possible to increase your share in the property up to 100% of its value. This is known as ‘staircasing’.
You are eligible to buy a home through the Shared Ownership scheme if:
• you have a household income of less than £80,000 (outside London) or £90,000 (inside London)
• you are a first-time buyer
• you used to own a home but can’t afford to buy one now or
• You own an existing shared ownership property but are looking to move.
If you already own a property you must have sold it prior to applying.
Stamp duty relief
First time buyers don’t have to pay on properties under the value of £300,000. For properties over this value, 5% is payable on the remaining proportion, although, the purchase price must be less than £500,000 otherwise the normal stamp duty rules will apply. In order to be eligible for this exemption, all purchasers must be first time buyers, meaning all buyers must have never had a legal interest in a residential property either in the UK or abroad. This also includes inherited properties.
When purchasing a Shared Ownership property, there are two ways of paying your stamp duty:
• You can choose to make one payment based on the market value of the property regardless of how much of the property you are purchasing at the time.
• You can pay the stamp duty in stages based on the share you are purchasing at the time.
However, you do not have to pay stamp duty until you own more than an 80% share.
Although the deadline for the Help to Buy ISA is imminent, the Lifetime ISA is a potential alternative. Using this ISA, you can deposit up to £4,000 each year until you are 50. The government will boost your savings by 25% each year. To be eligible to use this ISA for your first home, you must be aged 18-40, the property must be under the value of £450,000, have had the ISA for at least a year and be purchasing with the use of a mortgage. However, if you have both a Help to Buy ISA and a Lifetime ISA, you can only use the government bonus from one of these towards your house purchase.
Research suggests that 3 in 5 first time buyers now rely on financial help from family. The Post Office Family Link Mortgage allows the first time buyer to raise their deposit without families having to part with their savings, with the use of a close relative’s home. This is useful for first time buyers who are able to afford monthly mortgage payments but have not been able to save the deposit. The Post Office will lend 90% of the value of the purchase property. The 10% deposit is then lent as a mortgage secured against a family member’s home- however this property must be mortgage free.
For the first five years, the payments will be split into family member’s mortgage (which is interest-free) and one towards their own mortgage (which is subject to interest).
Another example of new mortgage product is the Family Springboard Mortgage introduced in 2016. This enables first-time buyers to purchase a property without a deposit. This mortgage is suitable for anyone aged over 18 and buying a home under the value of £500,000. There is no deposit required as a family member (known as the helper) provides security to the mortgage by opening a Helpful Start Account with 10% of the property purchase price which must be deposited in the account for 3 years in order to secure the loan. After the three years, the funds can be withdrawn – with any interest accrued.
How Rix & Kay can help
For more information, please contact Conveyancing Assistant, Samantha Sperring.