Buying a home for the first time can be a daunting process, but there are currently schemes and incentives available to help first-time buyers get on the property ladder.

Here, we have put together a guide to the mortgages and benefits first-time buyers can access which can make the process much more affordable.

Who qualifies as a first-time buyer?

A first-time buyer is classified as someone who is purchasing a residential property for the first time. Those who have owned a house, flat, an entire property or a share in one previously may not be eligible for schemes designed to help first-time buyers.

We have a few lenders who are able to classify you as a first-time buyer if you have not owned a property within the last 12-36 months, but we would need to check if these products were beneficial to you on a case-by-case basis.

A few schemes and purchase types open to First Time Buyers are outlined below.

5% deposit mortgages

We have lenders who are able to offer mortgages with as little as a 5% deposit. This can be hugely beneficial when saving towards a house. These products were previously removed from sale, but have seen a strong recovery in the last year.

There are also some Government-backed schemes such as the Help to Buy: Mortgage Guarantee Scheme which is also a 5% deposit mortgage, but where the Government provides a Guarantee to protect the lender should the house prices fall. These products have additional eligibility rules, so it may be more prudent to obtain a standard 5% deposit mortgage, but we will review the options for you.

Ultimately, 5% deposit mortgages can be incredibly useful for those who are struggling to put together a deposit. It is important to note, however, that if you can afford to save up more and put down a higher deposit, more mortgage deals with lower rates may be available to you.

Help to Buy: Equity Loan Scheme

Help to Buy Equity Loans are still available up until March 2023 and, similar to the 5% Deposit mortgages above, they can enable you to purchase a property with a low deposit.

There are regional purchase limits to take into account, but effectively the government will provide a 5-year interest-free loan to further increase your deposit, allowing for you to purchase a more expensive property which would have been out of reach based on your borrowing capacity and available deposit, and generally at a lower interest rate.

This is only available for New Build properties and the interest-free loan is capped at 20% outside of London and 40% within London.

After the initial 5-year interest-free period, interest is then payable on the additional provided deposit, so a mortgage review would be recommended to see whether paying some or all of Equity Loan is possible to reduce the impact of this additional interest. You should note that the equity loan is a percentage value based on the new (potentially uplifted) property value, so you may pay back more than was originally provided.

Shared ownership

The next mortgage type in our first-time buyer’s guide is the shared ownership mortgage. Shared ownership mortgages allow you to buy a share in the property and pay rent on the remaining value of the property.

You only need to pay a deposit based on the cost of the share you are buying, and you can often pay to increase the percentage share you own later on (this is known as stair-casing).

First-time buyers earning less than £80,000 a year outside of London, or less than £90,000 in London could be eligible for a shared ownership mortgage.

While this is often used as a way for First Time Buyers to get on the housing ladder, it is possible to obtain Shared Ownership as a standard buyer. However, we would need to check that you meet the qualifying criteria at the time.

Guarantor mortgages

Guarantor mortgages allow you to take out a larger mortgage than you would usually be permitted to based on your financial situation alone. This is because a guarantor promises to cover the mortgage repayments if you fail to make them. These are far less common these days, and the legal implications can be just as heavy as if you were to simply apply for the mortgage jointly with the guarantor.

The guarantor on this kind of property is usually a close family member, and they must possess enough equity to satisfy the lender or own their property, as well as have a high enough income to cover the cost of mortgage repayments.

As these are less common, certain lenders have released similar, but not identical, types of products that are aimed to use the financial stability of a family member to assist and support a First Time Buyer to obtain their first mortgage. Some of these schemes may involve the loan of funds, some may involve providing financial guarantees, and others may even involve an equity stake being taken in the guarantor’s property to support the First Time Buyer in obtaining theirs.

Stamp duty relief

Stamp duty land tax is a tax that must be paid when purchasing a property or land valued above a certain amount in England or Northern Ireland. This tax only applies to the value of the property over £125,000. Above this amount, stamp duty is applied at a tiered rate.

However, first-time buyers purchasing a home worth £500,000 or less are usually eligible for stamp duty relief, meaning they don’t have to pay stamp duty on the first £300,000 of the property value (instead of the first £125,000). Stamp duty is only applied to the value of the property between £300,001 and £500,000 at a rate of 5%.

First Homes Scheme

The First Homes Scheme is designed to help first-time buyers get on the property ladder by offering a 30% discount on the market value of new-build homes. This scheme is subject to certain eligibility criteria, such as the buyer(s) not having a combined household income of more than £80,000 (or £90,000 in Greater London) in the tax year immediately preceding the year of purchase.

The scheme is not exclusive to but does prioritize key workers providing essential services and armed forces veterans and their families within 5 years of leaving the armed forces.

The mortgages and schemes included in this first-time buyer mortgage guide are just a few of the options available, but if you are looking for further mortgage advice or a mortgage broker to find you the best deal, please contact us and we’ll be happy to help.