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14 June 2021
If you're a struggling first-time buyer trying to scrape together a deposit, there are a number of Government mortgage schemes that may be able to help you. This guide explains all about Help to Buy, Starter Homes, Social HomeBuy and shared ownership. They may get you on the housing ladder quicker than you originally thought.
Before you start, see if you could get accepted for a standard mortgage – if you have at least a 5% deposit, it could well be possible. See our free First-time Buyers' Mortgage Booklet for full info.
If not, all is not lost – there are schemes to help you get on the property ladder. Which one is right for you will depend on your situation and what you want to buy. Read on to find out more.
In the situation that your 5% deposit is not enough to secure a standard mortgage, the Help to Buy – equity loan scheme is an option to consider. Similarly, there is the London Help to Buy scheme if you want to be in the capital.
If you live in Wales and are struggling to get a deposit together, the new Rent to Own scheme may help.
And for prospective first-time buyers who are still saving, see Help to Buy ISAs for how you can get a cash boost from the Government towards purchasing your home.
If you are, then both of the Help to Buy schemes above are an option for you, as well as Rent to Own in Wales. Starter Homes is a new scheme available on new-builds only, for those under 40 years old.
If so, shared ownership allows you to buy a share of your home (between 25% and 75% of its value) and pay rent on the remaining share, which is owned by a housing association. Social HomeBuy allows you to buy a minimum 25% share of your property.
Below is further information on the various Government mortgage schemes available, including eligibility criteria.
Read the intros to see if one sounds right for you, then click to reveal all the information you need to know on the various schemes before you go ahead.
This scheme is also designed to help those with 5% deposits get on the housing ladder, but it's only available on new-build properties. The catch is the Government lends you up to 20% of the property price and after five years you'll have to start paying interest on the loan.
Who can do it? First-time buyers and home movers with a deposit of at least 5%. The current scheme will run until April 2021, when it will be replaced by a watered-down version. The new version will last until March 2023 – it will only be open to first-time buyers and include lower, regional property price caps.
House price: A home worth less than £600,000 (£300,000 in Wales).
Property type: New build.
How to apply: You will need to search for your local Help to Buy agent.
Government lends you up to 20% of the property value (interest-free for the first five years). This substantially reduces the monthly costs in the first five years and should give you access to cheaper mortgage products, as you only need to borrow 75% of the value from the lender.
Government controls up to 20% of the property value. You will need to pay this back at the end of the mortgage or when you sell, and after year five, you start paying interest on it. The amount you need to repay will depend on the property value at that time.
Although the property is in your name, you'll also need to seek approval from the Help to Buy agent in certain circumstances, eg, extending or altering the property, or the price you sell for.
What's the interest rate on the loan? The good news is it's interest-free for five years. From year six you start to pay interest, but only on the original loan amount. So say you borrow £20,000 but owe £25,000 at the end because the property price goes up, interest is only charged on the original £20,000.
The rate from year six is 1.75%, though it rises each subsequent year by the Retail Prices Index (RPI) inflation measure, plus one percentage point. Assuming RPI is 3%, the interest rate would rise by 4% (3% + 1%). So instead of paying 1.75%, as 4% of that is 0.07%, your rate would rise to 1.82%.
When do I pay the loan back? It must be repaid when the house is sold or at the end of your mortgage term – whichever comes first. The Government will take 20% of the sale price, whether higher or lower in monetary terms than the amount lent. You can also pay back some or all of your equity loan without selling your home.
If you only want to make a partial repayment, this is called 'staircasing'. The Government will only accept it if it's for a minimum of 10% of the property's current value, or you're clearing the whole loan.
Which lenders offer Help to Buy mortgages? Most lenders are offering Help to Buy mortgages, including big names Barclays (Woolwich), Nationwide, NatWest and Santander.
How this works. Buy a home for £200,000 under the equity loan scheme, you pay £10,000 (5%) and get a mortgage for £150,000 (75%). The Government loans you the final £40,000 (20%).
This guarantee scheme was available for first-time buyers and home movers on new-build properties in Scotland. It began on 30 September 2013 and was initially intended to run until the budget was used up, anticipated to take at least three years. However, as of May 2015, the scheme was fully subscribed and no longer taking new applicants.
Help to Buy (Scotland) was relaunched in 2016 and has since been extended. It's now made up of two schemes – the Affordable New Build scheme, available to larger home builders, and the Smaller Developers New Build scheme, for smaller home builders.
Like the scheme in England, you must be able to stump up a 5% deposit. The Government will then lend up to 15% of the property's value (the home cannot cost more than £200,000).
For more info, see the Help to Buy (Scotland) website.
There's no reason you can't haggle on the price like any other buyer.
You can sell at any point, but a Help to Buy property must be sold at the current market value and a post-sale Help to Buy agent must also approve the sale.
A HomeBuy agent would need to give approval to any significant alterations or extensions. As the scheme is designed to help as many people with a small deposit get on the property ladder as possible, you would be expected to consider repaying the equity loan (or some of it) before spending money on alterations. The agent will consider the need for works before making a decision, eg, if for mobility reasons, then it's more likely to be approved.
You're not allowed to let out your property, and you will be required to sign a form confirming that you won't during the application process. However, there's no reason why your partner can't move in.
It differs from civilian Help to Buy schemes in that it's a simple, interest-free loan you repay over 10 years. The scheme allows you to borrow up to 50% of your salary to help with a deposit and the costs of buying a home. The maximum loan is £25,000.
Am I eligible? You need to:
How to find out more: Go online through the Joint Personnel Administration system to find out more. Alternatively, you can seek advice through your chain of command and personnel agency.
This is an extension of the existing Help to Buy equity loan scheme to help Londoners get on the property ladder.
Who can do it? Anyone wanting to buy in London with a 5% deposit.
House price: Properties in Greater London costing up to £600,000.
Property type: New build.
How to apply: To apply you'll need to go to the Help to Buy London site. Barclays, Halifax, Leeds Building Society, Lloyds, Nationwide, RBS, Santander and TSB have agreed to offer London Help to Buy.
The Government lends you up to 40% of the property value (interest-free for the first five years). This substantially reduces the monthly costs in the first five years and should give you access to cheaper mortgage products, as you only need to borrow 60% of the value from the lender.
The Government has control of up to 40% of the property value. You will need to pay this back at the end of the mortgage or when you sell, and after year five, you start paying interest on it.
The Chancellor announced this new scheme – London Help to Buy – in the 2015 Budget to address what he described as the "housing crisis" in the capital.
The new scheme is basically an extension of the existing Help to Buy equity loan scheme. Until 2021, it will allow Londoners with a 5% deposit to get an interest-free loan for five years, worth up to 40% of the value of a newly-built home – twice as much as under the existing Help to Buy equity loan scheme.
Those who use the scheme will have to take out a mortgage to cover the remaining 55% of the cost of the property. Buyers will start paying back the equity loan after five years at a rate of 1.75%, rising every year at 1% above inflation.
Help to Buy ISAs are a decent option if you're a first-time buyer saving for a mortgage deposit. You can earn up to 2.58% interest tax-free and then the state will add 25% free cash, and it could be £1,000s, on top of what you save.
Who could do it? Anyone can get one, as long as you're a first-time buyer or plan to be in the future and frankly, even if you've only an inkling you may buy a house, it's worth starting it off.
You can open one anytime until December 2019 and you'll still get the bonus added as long as you use it for a deposit until 2030.
As for what a first-time buyer is – the definition is strict. It's someone who doesn't own and has NEVER owned an interest in a residential property, either inside or outside the UK, whether it was bought or inherited.
House price: Under £250,000 (£450,000 in London) and any mortgage.
Property type: Any property.
How to apply: A range of providers offer Help to Buy ISAs, for the best buys see our Help to Buy ISAs guide.
Unlike a cash ISA – where you can open a new one each tax year – you're only allowed one Help to Buy ISA (ie, from one provider) full stop. But you can continue to add to it each tax year.
And although you're only allowed to get one Help to Buy account, you can transfer it between different providers to chase the best interest rates.
So it's important to monitor the interest rate you're getting and, if it drops, find a new Help to Buy ISA provider paying a better rate (you'll need to ask it to transfer your existing one when you open your new account – don't take the money out yourself).
And of course with the Help to Buy ISA, just like any other ISA, the interest you earn is tax-free, so you get to keep all of it. For all the information you need, see our Help to Buy ISA guide.
Who can do it? First-time buyers under the age of 40.
Discount available? Starter Homes will be sold at 80% of the market value of the home. The discounted price should be no more than £250,000 outside London and £450,000 in London.
Property type? New build.
How to apply: You'll need to register your interest to ensure you receive updates on the initiative and are alerted when homes become available in your area.
You'll get a 20% discount on the market value of the property.
You cannot sell or let the property at the open market value for 15 years after you bought the property.
This is a very new scheme, the planning policy through which Starter Homes can be developed is now in place for potential developments to come forward, but it may be a while before any homes are completed to be sold.
Who can do it? Non-homeowners, including first-time buyers and those who previously owned a home, who earn £80,000 a year or less (thresholds are up to £90,000 in London). You'll need to have enough savings to cover a 5% deposit of the share you're buying, and to cover moving costs, stamp duty, solicitors' fees etc. You'll also need to find a mortgage lender that is willing to lend on shared ownership properties.
House price: Any.
Property type: Eligible properties can vary under the various schemes.
How to apply: This depends on where you are. For England (excluding London), go to Share To Buy. For London, go to Gov.uk for more information. For Scotland, see shared ownership. For Northern Ireland, it's the Co-ownership NI website, and for Wales, you'll need to check with your local housing association.
Allows you to buy a share of your home from the housing association and continue to rent the remainder, keeping costs affordable.
The cost of buying additional portions will depend on the property value at that time, so could go up.
How this works: Say you buy a home worth £200,000 under shared ownership, where you buy a 25% share (75% owned by a housing association). That works out as:
You pay subsidised rent (and usually a service charge) on the share you don't own, which will be less than the market value. If subsidised rent on the property is £100/week, but you own a 25% share, you'd pay £75/week.
How to apply for a shared ownership scheme:
Share To Buy – England (not London)
For non-homeowners, on new-build or resale housing association homes. Under HomeBuy, you choose to buy a share of a home between 25% and 75% and then pay subsidised rent on the rest. You can buy additional shares at a later date until you fully own the property if you choose to. More info and how to apply, see Share To Buy.
First Steps – London
For non-homeowners, on new-build or resale housing association homes. In London, the scheme's called First Steps Shared Ownership. It allows you to buy from 25% of a shared ownership home, and then pay rent, capped at 3% of the market value, on the rest. See First Steps for more information.
You are allowed to earn slightly more with First Steps: a max of £71,000 household income when eligible to purchase or rent a one- or two-bedroom home, and a max of £85,000 when eligible to purchase or rent a family-sized home (three or more bedrooms).
Shared ownership – Scotland
For non-homeowners, unable to afford to buy housing association homes on the open market.
Under shared ownership, you can buy either 25%, 50% or 75% of a property in Scotland with a housing association, to which you'll pay a reduced rent on the proportion you don't own.
Co-ownership – Northern Ireland
For first-time buyers, who can't buy on the open market any property worth £165,000 or less – co-ownership is available for newly-built and older homes in Northern Ireland.
You buy as big a proportion of the home as you can afford between 50% and 90%, and pay rent on the rest. You can 'staircase' up by buying more of the home when you can afford it, in 5% increments. The home you're buying must be worth £165,000 or less, or it won't be eligible for co-ownership.
For more information, see the Co-ownership NI website.
Shared Ownership – Wales
Shared Ownership – Wales allows 25% to 75% of a housing association home to be bought by those unable to obtain the level of mortgage needed to buy a home outright. Rent is paid on the un-owned share of the property. For more information, see the Shared Ownership – Wales website.
Who can do it? Those who have lived in social housing for at least five years, and your landlord must be a member of the Social HomeBuy scheme.
Discount available: You'll get a discount of between £9,000 and £16,000 on the value of your home, depending on where your home is and the size of the share you're buying. You buy a minimum 25% share of your property, then pay a subsidised rent on the rest. When you can afford to, you can increase the share of equity that you own.
Property type: Council or housing association properties.
How to apply: Not all councils or housing associations have joined the scheme. Check with your landlord to find out if it belongs to the scheme and whether your home is included.
Gives you a discount on the value of your home and allows you to buy your council property a proportion at a time and continue to rent the remainder, keeping costs affordable.
The cost of buying additional proportions will depend on the property value at that time, so could go up.
For any property where you are a leaseholder – and this will definitely be the case if you are buying a flat from the council or housing association – be aware that you have the right to be consulted about charges for running or maintaining the building if you have to pay more than £250 for planned work, or £100 a year for work and services lasting more than 12 months.
However, bear in mind the freeholder of the block can make changes and require the leaseholders in the block to pay. You'll have to pay, even if you objected in the consultation.
Who can do it? Non-homeowners, with a combined household income of £60,000 or less and who are not eligible for housing benefit.
Property type: New-build properties available under the scheme.
How to apply: Read the Rent to Own – Wales Buyers Guide for full details about the scheme and to see if you're eligible. If you think you are, you can contact landlords participating in the scheme to find out about available properties. If you find a property you want to reserve, you'll need to pay a holding fee of £250 and complete the Rent to Own – Wales application form.
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