Changes to the government’s Help to Buy Equity Loan scheme from 1st April, mean that first-time buyers will be able to benefit from regional price caps, which will now limit how much developers can charge for new homes sold under the scheme. Previously the scheme had been available to all buyers, but from this spring only first time buyers will be able to benefit from the 20% equity loan from the government.
In addition, 90% mortgages are starting to make a comeback after being pulled from the market shortly after the UK went into its first national lockdown in March 2020. This is definitely good news for those trying to make their way onto the property ladder for the first time.
Over the past few years, buying a home has seemed increasingly out of reach for a lot of first-time buyers. In a survey conducted by KIS Finance, 23.5% of people revealed that they will be reliant on financial help from family members to put a deposit down on their first home.
According to ONS, in 2017 over half of the first-time buyers were aged 34 or above. This is a significant increase from before the 2007 recession when the average age was 28.
However, data shows that some people are having to wait far beyond this age before having the funds available to put down a house deposit.
A staggering 44.2% of the 35-44 year-olds who took part in the survey are planning to purchase their first home but haven’t been able to yet. 17% of this age group have stated that they will still need help from family to put the deposit together.
More significantly, 28.3% of 45-54 year-olds are still waiting to purchase their first home and 7.6% of this group will be relying on financial help from family to make this happen.
With research finding that even with a 15% deposit, buyers will still need an income of £37,096 to qualify for a mortgage to purchase an average priced house (based on typical 4.5 times salary), it’s not surprising that homeownership will remain out of reach for many.
Holly Andrews, Managing Director of KIS Finance explains why the reintroduction of 90% mortgages and the changes to the Help to Buy scheme is such welcoming news for first-time buyers and the housing market.
Holly says: “Getting on to the property ladder has seemed like an impossible task for so many first-time buyers over the past few years. The difficulty of having to save up for a house deposit, whilst paying rent and living expenses, has led to so many people needing to source financial help from their loved ones to buy their first home.
"According to the ONS’ latest UK House Price Index, the average price for a house in the UK currently stands at a record high £250,000. With an average deposit of 15% - 20% required for most mortgage products, that leaves buyers having to save between £37,500 and £50,000, plus stamp duty, fees, and moving costs. This is a huge amount of money and many will never be able to save this."
Holly adds: "However, things are starting to look more promising after the ups and downs of last year, when products for first-time buyers were pulled from the market during the pandemic.
"The reintroduction of 90% mortgages this month means that buyers who qualify will only have to save 10% of the property price. While this is still a lot of money, it’s a big step in the right direction for first-time buyers. A few lenders have started to do this, but HSBC have been leading this comeback of low deposit mortgages.
"The changes to the Help to Buy Equity Loan scheme is another very welcomed support for first-time buyers. With the scheme now only available to those who have never bought a house before, it enables buyers to put down just a 5% deposit, with the government adding up to 20% of the purchase price. The equity loan can only be used to purchase a new-build property from a developer who’s registered with the scheme, and a regional price cap has been added to ensure fair pricing is maintained.
Holly concludes: "5% and 10% deposits will make the dream of homeownership a possible reality for many first-time buyers. It could also stimulate another mini-boom in the housing market now that sales are starting to drop off as the deadline for the temporary stamp duty relief approaches."
