Since reopening after lockdown, the UK property market has rallied as many scramble to buy their first homes. Recently, the UK government has introduced incentives and support schemes like the government-backed 95 percent mortgages.
However, for many first-time homeowners, they are now finding themselves priced out of the market thanks to ever-increasing house prices, and with the end of the infamous first-time buyers ISA scheme, those looking to get on the property ladder in the UK are now seeking alternative support to realise their home-owning dreams.
The FTB ISA closed to new applicants on 30 November 2019.
With its end, the reality and market for first-time buyers have both changed – in more ways than one.
What Was The Help To Buy FTB ISA?
The Help To Buy ISA was launched to help first-time buyers build up a deposit over four years of saving. The major benefit of using this saving account was the 25 percent bonus promised by the UK Government. Consumers can claim their 25 percent bonus upon completion of their first home. However, the scheme has had its own set of roadblocks during its tenure. Some homeowners have complained that they only received their bonus after the purchase had been completed.
Others have complained of the £200 deposit cap and restrictions on who they can open an account with (both holders must be first-time buyers). While the scheme has closed to new applicants, those with an existing Help To Buy ISA can continue to pay into it until November 2029. They also have until December 2030 to claim the 25 percent bonus.
FTB Help To Buy Equity Loan Scheme Replaces FTB ISA
With the end of the FTB Help To Buy ISA, more UK consumers are exploring alternative options like the Help To Buy Equity Loan scheme. Even before the end of the FTB ISA, the equity scheme had gained popularity – it accounted for 60 percent of new home purchases in the last quarter of 2018. Recently, the government announced that the equity scheme would be limited to first-time buyers, and added regional caps. This means that first-time buyers will be able to borrow up to 20 percent on a new-build property, as long as they have a 5 percent deposit. For those in London, this has been increased to 40 percent – a welcome change for different areas in England.
While the curtailment of the scheme to first-time buyers may seem more favourable, the addition of regional caps has meant that a significant number of homes would not be priced out of the scheme.
For instance, developer Taylor Wimpey has said that almost half of its homes that would have qualified under the Help To Buy Scheme last year are now not eligible.
Rising property prices and a shift in buyers towards sustainable living are expected to put pressure on the scheme. Over half of UK consumers prefer sustainable homes.
More of them are also considering constructing a vegan property, which will utilise new construction materials (many traditional building materials, including bricks and wood, often contain animal products) and can impact the mortgage values. With the sudden end of the Green Homes Grant, first-time buyers will find themselves picking up more of the tab for living sustainably from their first home purchase.
Deposit Saving Timeline Extends With The End Of FTB ISA
Most first-time homebuyers must save more than a year’s salary for their downpayment. 2019 research done by Which found that Londoners face a decade-long wait before they can afford a 15 percent deposit – the average amount for most first-time buyers.
And while buyers can now secure a mortgage with as little as a 5 percent deposit, their deposit amounts have ballooned thanks to climbing house prices. With the current average house prices for first-time buyers hovering around £209,163, homebuyers now have to save 15 percent, or £31,374. In some areas of London, it can take a homebuyer a stunning 11 years to save a 15 percent deposit.
Lifetime ISAs Remain A Lifeline
The number of savers with lifetime ISAs increased 45 percent, taking the number of users to 223,000. Savers who open a lifetime ISA can pay up to £4,000 every year and benefit from a 25 percent top-up at the end of the financial year.
They can either withdraw the money to buy their first home, or access it when they are 60 for their retirement. For those first-time buyers that choose to use it to fund their homes, there is a property price cap of £450,000. With the 25 percent incentive, many first-time buyers are turning to this saving option to replace the end of the help to buy FTB ISA.
While the Help To Buy ISA scheme may have ended, alternative options are being introduced with first-time buyers in mind.
New mortgage guarantees, alternative ISAs with government bonuses, and equity loans are all there to help UK consumers get onto the property ladder – particularly those in the 25 to 34 age bracket. However, even with all of the perks, it is clear that owning a home is not as easy as it used to be for first-time buyers.
