Currently, first-time buyers are left scouring the market for schemes to help them climb the property ladder. This has become all the more evident during the cost-of-living crisis, where buyers are struggling to save up for a deposit while paying sky-high rents.
In the past, the Help To Buy ISA filled this gap – but it’s finished for several years now. Equally, the Help To Buy Equity Loan scheme closed to new applicants in October 2022 and is due to end completely by March 2023.
So, what’s next for buyers? Which Help To Buy alternatives will help you snag your first home? This article explores all the options, helping you to check your eligibility and weigh up which schemes work best for you.
Why is Help To Buy ending?
Help To Buy emerged after the 2008 financial crash, at a time when lenders were unwilling to work with low deposits and, therefore, increase their liability. The government introduced the Help To Buy scheme to help buyers get the deposits they needed to purchase their first home.
Since then, the financial climate has changed considerably, and several problems have emerged with the Help To Buy scheme. For example, it was seen as a culprit of house price inflation and a means by which buyers paid too much for new build homes.
What will replace Help To Buy in 2023 and 2024?
Regrettably, there is no like-for-like scheme yet. The government has yet to announce a replacement, though there are alternatives that serve a similar function and can help you get on the property ladder.
Here are 8 of the best options available:
1 The Mortgage Guarantee Scheme
This scheme allows buyers to purchase a home using only a 5% deposit. These mortgages
To access this scheme, you must:
• Buy a property under £600,000
• Your lender must participate in the scheme
• You must apply before December 2023
The government offers a guarantee to lenders, so they’re protected if borrowers can’t pay their mortgages. Before the pandemic, many of these loans were on the market, and they’ve now introduced them again. It’s wise to discuss the options with your mortgage broker to see what deals are on the market.
2 The First Home Scheme
This scheme allows specific people to buy new-build homes at a discounted price, between 30-50% off the market value. Eligible homes are specifically advertised by developers.
To access this scheme, you must:
• Be over 18 years old
• Be a first-time buyer
• Be able to get a mortgage for at least half the home’s value.
• Be part of a household where the total income doesn’t exceed £80,000 (or £90,000 if you live in London)
• Buy an eligible property
The local authority can prioritise certain people for First Homes. For example, key workers like nurses and military personnel. Equally, you can use the First Home initiative if you buy a home from someone who originally purchased the house using the scheme.
3 Right To Buy Scheme
The Right To Buy Scheme lets council house tenants purchase their home at a discounted price – by a maximum of £96,000 (or £127,900) off the market value. This applies to any eligible council house.
To access the scheme, you must:
• Have your council property as your ‘main’ or only home
• Have a self-contained council house
• Be a ‘secure tenant’ (i.e. passed your tenancy trial period)
• Have had a public sector landlord for a total of 3 years (not necessarily in a row)
You can apply for the scheme jointly, either with a co-tenant or family members who have lived in the property with you for 12 months or more.
The discount is based on how much the property is worth, how long you have been a public sector tenant, and the type of property you are buying. The discount you can claim changes yearly, in line with the Consumer Price Index (CPI).
4 The Shared-Ownership Scheme
Shared Ownership lets you reduce your house deposit by allowing you to buy a percentage of a property. You can increase your shares over time, usually up to 100%.
You normally buy a share of the property between 25-75%, and pay rent on the shares you do not own. This rent is capped at 3% of the landlord’s shares in the property for the first year. For example, if the home costs £200,000 and the landlord owns 50%, the maximum rent you’d pay is £3000 (£250 per month). After the first year, rent increases annually according to the Retail Price Index % (RPI), plus 0.5%.
Apart from paying rent on the amount you don’t own, you can also buy more shares in the property. You can acquire shares a few per cent at a time, and there is usually a time limit before you can do so again.
5 Lifetime ISA (LISA)
The Lifetime ISA lets you save money for your first home (or for retirement). You can invest a maximum of £4000 per year, and the government will provide 25% interest on this amount – up to £1000 each year!
As good as this scheme sounds, there are several conditions attached:
• Savings may only be used for buying a first home, with a maximum value of £450,000 – or for your retirement
• You must open an account before you reach 40
• You must be 18 or over to open an account
• You can only save until you are 50
However, if you’re eligible, this ISA is an excellent investment. Save from 18 to 50, and top up your account with a maximum of £4,000 per year to save £160,000 in total (including yearly government interest).
The average age to buy a home is 34 in the UK, so if you saved between 18 and 34 – you could still amass up to £80,000 in savings for your first home.
6 Sole Proprietor & Joint Borrower Mortgages
These help buyers acquire a home by adding another person to their mortgage (e.g. a parent or guardian). Fortunately, helpers don’t need to deposit cash or use their possessions as collateral.
How does it work?
The buyer and their helper apply for the mortgage together. They will be jointly responsible for mortgage repayments, but the helper has no claim on the property – only the buyer will own it. This is why it’s called a ‘sole proprietor’ or ‘joint borrower mortgage’. The presence of the helper assures the bank that they’ll have options if the buyer can’t repay their loan.
However, both people must pass affordability checks as they apply for the mortgage together. Equally, the buyer must put down the required deposit to secure the mortgage.
7 A Security Deposit Mortgage
You can agree to use family savings as security for your mortgage, helping you get on the property ladder. It is a great way to get a mortgage if your personal savings aren’t quite high enough.
While this isn’t a government loan or scheme, it is a mortgage type aimed to help buyers get on the property ladder for less. In this case, the lender lets the buyer use friends and family as helpers to top up their mortgage deposit.
A friend or family member guarantees your deposit (or a portion of it). For example, they could offer £50,000 for a 20% deposit on a home valued at £250,000. If you could not repay your mortgage, they would be liable to pay the £50,000 they committed, but not the whole mortgage amount.
There are 3 types of security deposit mortgages to choose from:
- Collateral Charge: This lets the helper guarantee a portion of their own assets as security for the buyer’s home – without putting down cash. For example, they could guarantee £50,000 against the value of their own property.
- Linked Savings Deposit: The helper provides the deposit in cash and receives interest on their money for the next few years. The funds they contribute are used as collateral for the buyer’s mortgage.
- Offset Savings Mortgage: The helper contributes cash to the deposit but doesn’t receive interest. Instead, the interest they’d get offsets the interest rates paid by the buyer instead. This reduces the amount the buyer pays in interest, though the helper earns nothing on their stake of the deposit.
8 Forces Help To Buy Scheme
This scheme lets personnel in the armed forces borrow up to 50% of their annual salary for a house deposit (or other home-buying costs). The amount you can borrow is capped at £25,000.
Obviously, this scheme is much more niche than the others, and you must meet certain requirements to access it:
• You must have completed the required amount of military service
• You cannot be a reservist or part of the Military Provost Guard Service
• You must have over 6 months left to serve when you apply
• You must meet specific medical criteria
And Finally…
Most Help To Buy schemes have ended, but first-time buyers still have options. From ISA’s to specialist mortgages, there are many creative ways to secure your first home. To weigh them all up, it’s best to contact a mortgage broker to help you select the best option available.
