What do you do if you’re struggling to raise the deposit for your first home.
I have had a few meetings with clients recently in exactly that position - the amount of deposit they can raise is insufficient to buy the property of their dreams.
In all my years in the property market and now the finance industry this has always been the issue of contention for first time buyers, watching the properties they want continually increase in value whist the deposit they can raise does not have the same rate of growth.
Luckily, there are now government incentives available for these buyers, I will cover a few of these below.
Help to Buy ISAs
Save up to £200 per month for up to 4 years and the government will pay a 25% bonus when used to purchase a first home. You can only have one Help to Buy ISA per person but if a couple buying a house are first time buyers, each person’s help to buy ISA can be used to purchase the same property.
• Only available on properties up to the value of £250,000 (£450,000 within London)
• Can be opened from 16 years old
• The minimum government bonus is £400, meaning that you need to have saved at least £1,600 into your Help to Buy ISA before you can claim your bonus.
The maximum government bonus you can receive is £3,000 – to receive that, you need to have saved £12,000.
Lifetime ISA (LISA)
Save up to £4000 in each tax year in either regular payments or lump sum. The Government will pay a 25% bonus once you have held the LISA for a minimum of 1 year. Only one allowed per individual but if both individuals are first time buyers, each person’s Lifetime ISA can be used to purchase the same property.
• Available for first time buyers purchasing properties anywhere in the UK up to a value of £450,000
• Can be opened by anyone from 18 to 39 years old and can save up to your 50th birthday.
If you have one of the above schemes you are still allowed to save into a regular ISA up to your available £20,000 per tax year.
Help to Buy equity scheme
This scheme is only available for new build properties that subscribe to the Help to Buy Scheme. When you apply for this scheme the government provide a 20% deposit for properties up to £600,000 in England and £300,000 in Wales (the deposit is increased to 40% in London). You as the purchaser must provide a 5% deposit and the remainder is raised as a mortgage. This must also be the only property that you own.
You’ll have to pay equity loan fees, but not for the first 5 years.
In the sixth year, you’ll be charged a fee of 1.75% of the loan’s value. The fee then increases every year, according to the Retail Price Index plus 1%.
Your Help to Buy agent will contact you to set up these monthly fee payments. You’ll also get a statement about your loan each year. These fees don’t count towards paying back the loan.
Paying back the loan
You must pay back the loan after 25 years or when you sell your home - whichever comes first. The amount you pay back depends on how much your home is worth (the market value). For example, if when you come to sell your property it has increased in value by 10%, your first obligation is to repay the Help to Buy loan. You would repay the initial loan amount PLUS a further 10% of that same amount to reflect the growth in value during the time you owned the property.
You can pay back all or part of your loan at any stage, the smallest repayment you can make is 10% of the market value of your home.
Shared ownership scheme
This is where a first-time buyer with a joint household income of less than £80,000 or £90,000 in London, purchases a share of a property of anything between 25% and 75%, and pays rent on the rest of the property.
This allows you to get on the property ladder with a reduced deposit and as the property grows in value and your income increases you have the right to purchase further shares in the property by way of a staircasing mortgage.
This is based on the market value of the property when you apply for the staircasing mortgage.
When saving up a deposit seems an unachievable aim, talk to a specialist. I’m always happy to answer questions and chat through your options.