Schemes that Could Get You Your First Home Faster: A Guide
Putting aside the funds you need to finally secure your first home can be tough; it may seem like it’ll be years before you’re finally doing that long-awaited happy dance, new house keys in hand. Your first house might be closer than you think, though. In this article, we take a look at the schemes that could help you get on the property ladder faster. Read on to discover all you need to know about existing first time buyer schemes…
Lifetime ISA (LISA)
An investment in your future, a Lifetime ISA (also known as a LISA) is designed to help you get on the property ladder faster.
Anyone aged between 18 and 39 (and living in the UK) is eligible to receive up to £1,000 per year* from the Government to make saving for a deposit on their dream house easier. How does it work, though?
With no fees, Unity Mutual’s Lifetime ISA offers an interest rate of 3%. The best bit? you’ll receive a 25% government bonus (up to a maximum of £1,000 per year) added to what you save.
No-deposit Mortgage Scheme
It’s big news on the house-buying front, so we simply had to include Skipton Building Society’s no-deposit mortgage – the first 100% no-deposit scheme to launch in the UK since 2008. Martin Lewis tells all on MoneySavingExpert, with the launch hugely appealing to first-time-buyers.
There are, of course, drawbacks– as there are with all the options listed in our guide. A five-year fixed mortgage, it works like other fixed mortgage deals – in that you are charged the same interest rate over a period of a half a decade. You won’t, however, need a deposit though.
‘Skipton’s 100% mortgage is only available to first-time buyers who have paid their rent in full (and on time) for at least 12 months’, explains Martin.
So, what’s the catch? ‘You can only borrow the equivalent, or less than, what you pay on rent each month’, states Martin, who has compiled a handy table to explain how this works.
Ordinarily, when you apply for a mortgage, the maximum figure you can borrow is based on your income and outgoings – as well as a lender’s affordability calculations (which can vary from lender to lender).
Rent to Buy
First-time buyers might also benefit from the Rent to Buy scheme, which helps tenants save for a deposit to buy a home. The scheme works by offering properties at a discount price (normally 20% below market rent) – but it’s only applicable to those living in England.
If you live in the capital, you’re not eligible for the scheme. You are, however, covered by something called London Living Rent.
If you’re in Scotland, unfortunately Rent to Buy is not available to you either.
Wales’ Rent to Own scheme is closed to new landlords, but some properties might still be available – suggests the Gov.uk site, which also states that there is a different scheme for first-time buyers in Northern Ireland.
The First Homes Scheme
As a first-time buyer, you may be eligible to buy a home for up to 50% less than its market value. The offer – named the First Homes Scheme – applies to homes built by a developer, or a home you buy from someone who originally bought the property as part of the scheme.
Only available in England, the scheme helps first-time buyers get on the property ladder significantly faster.
Those eligible for the scheme must be:
- 18 or above
- a first-time buyer
- able to get a mortgage for at least half the price of the property
- purchasing a home as part of a household whose combined income is no more than £80,000. If you live in London, your combined income must be lower than £90,000.
On top of the conditions above, your local council may also set some eligibility criteria, including prioritising those on lower incomes, or those who already live in the area.
Find out more about how you can buy a home for between 30 and 50% less than its market value by clicking the link above.
Shared Ownership
Can’t afford the deposit and mortgage payments on a property in England* that meets your requirements? The Gov.uk site offers some information on the Shared Ownership scheme, which allows first-time-buyers to purchase a share of a property (between 10 and 75% of the home’s full market value) and pay rent to a landlord on the rest.
*Be aware that there are different rules on shared ownership in Scotland, Wales, and Northern Ireland.
Psst: If you opt to progress with the First Homes Scheme or go down the shared ownership route, you can also utilise your LISA to make affording a property seem even more realistic.
Living at Home
Okay, so this is less an official ‘scheme’ and more another ‘sensible’ option to add to the mix – if you’re in the fortunate position to be able to live with family and pay nothing, or much less than you would if you were renting.
If you were to put aside what you currently pay in rent (the average monthly rent is £1190), you’d have £14,280 in just a year. And if your saving fell over two tax years, (which run April to April), you could put £8,000 of what you’ve saved in a LISA and receive a Government bonus of £2,000. This could mean in a little over 12 months, you could have a deposit of over £16,000 for your first home.
Not sure which option – if any – is for you? Here are some things to consider:
- Will you be committed enough to save into a Lifetime ISA? While the Government will top-up your annual savings by 25%, you may want to try to save the maximum amount of £4,000 to really take advantage of the scheme.
- Have you weighed up the fact that, with the no-deposit mortgage scheme, you’ll have less equity in the property. Should property values decline, you could be at greater risk?
- Are you confident you’ll want to stay in your home for several years? This is well worth considering if you’re going down the ‘Rent to Buy’
- Did you know, when you choose the First Homes Scheme, the same discount you receive will still apply when you try to sell the property? If property prices rise, therefore, the profit you’ll make from a future sale will be reduced.
- Shared ownership is great if you’re keen to move in with someone you trust, but would you prefer to own your home outright?
- Could you see yourself ‘living at home’ (with your parents or other family members) quite comfortably, if doing so could help you own your own home?
Consider the pros and cons of each scheme carefully and make the right decision for you – and your future.
Our Top Tips on Saving for Your First Home Faster
Alongside looking into the schemes above, we’re sure everyone – first-time buyer or not – could benefit from a few money-saving tips. Here are the most-used amongst the Unity Mutual team.
Reduce Everyday Spending
Often, it’s not the ‘big purchases’ that are costing you the extra money you need for that house deposit, but the ‘everyday expenses’ – a post-work drink or a Friday evening takeaway can add up to much more than you think across a month.
Make small changes every day and see how much you can save in 30 days. Why not set yourself a month-long ‘No Spend’ challenge; buy only the necessary items and save that treat for another day.
Tap Into the Psychology Behind Your Spending
Regularly assess what you’re spending – and why. Is your expenditure linked to an emotion? For example, do you treat yourself when you’ve had a bad day at work – or to celebrate a really good day, perhaps?
Try to tap into the psychology of your spending and you may be able to work out what’s leading you to reach for your purse.
Use Cash
Thanks to debit cards and online purchases, parting with your money is now easier than ever; just a quick tap of your card here, or swift swipe on a retail app and you could have shelled out hundreds in mere minutes.
If you’d like to be a first-time buyer in the not too distant future, hide your debit cards and use cash for those purchases. You’ll be surprised how one simple change like this might halt your spending; if you can feel your wallet getting lighter (and your coins and notes disappearing) you might be less inclined to spend.
Helping you put money aside for a new property or maintenance and repairs on an existing one, our accounts are designed with your savings goals in mind – get in touch for more details.
Want to chat to our team about any of our financial products?
The schemes we’ve outlined here all offer benefits to first-time buyers, as well as risks. Consider which option would work better for you in the long-run.
If you’re in any doubt it may be a good idea to talk to an Independent Financial Advisor (IFA), for unbiased advice on the best financial products for you, from a range of different companies. Find out more here.
Until next time…
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