The team at www.onlinemortgageadvisor.co.uk have outlined the alternative Government schemes from shared ownership right through to Lifetime ISAs and looked at the pros and cons of each, as well as the eligibility and affordability requirements.
Help to Buy: Equity loan scheme
Help to Buy, which offers a loan to first-time buyers enabling them to buy a new-build property with a minimum required deposit of just 5%, is set to end in March 2023. We’d urge those who are looking to buy their first property to take full advantage of this scheme while it’s still available, ensuring that they reserve their property by the end of October at the very latest.
When it comes to the pros of Help to Buy, along with only needing a small deposit of just 5%, the loan is interest-free for five years, but it’s important to remember that the interest charges after five years could be expensive, as linked to inflation (some banks have already confirmed their mortgage rates will rise). If you choose this scheme to help you get onto the property ladder before its deadline, bear in mind that interest rates tend to be much higher if you’ve got less than 10% deposit and typically, the more equity you have, the better off you’ll be. So, if you can, perhaps bide your time by saving more towards the deposit to access a cheaper mortgage but don’t miss the deadline.
Shared Ownership
Many first-time buyers will be looking for other schemes, aside from Help to Buy, to help get them on the ladder, and a Shared Ownership mortgage is one alternative to be considered. Shared Ownership is a cross between buying and renting, where a borrower buys a percentage of a property that they’re planning to live in. In other words, you own some of the property and rent the rest from a local housing association or local authority.
Shared Ownership can be a good way of buying in a more expensive area that you couldn’t otherwise afford, enabling a more accessible and cheaper route onto the property ladder. You’re also able to increase your share of the equity in the property if you wish, right up to 100% in the long run. However, only certain mortgage providers will offer Shared Ownership and it’s important to consider all additional fees you might face, so we’d advise seeking support from an experienced mortgage advisor who fully understands your needs and can help you consider all your options.
First Homes
Launched in June 2021, the First Homes scheme was specifically designed to assist first-time buyers, particularly those who are key workers, taking their first-time steps onto the property ladder. In some instances, this scheme can provide a discount on the price of a new property of up to half its current market value. However, the amount of discount is at the discretion of the local council in the area where the property is being built and is agreed upon directly with the developer – the minimum discount is 30% but it can be as high as 50% in certain cases.
Like Help to Buy, First Homes is only available on new build homes, so if there is a lack of them available in your area, this scheme might not be the right one for you. But if you’re eligible for this scheme, the discount will mean the mortgage requirement is lower. With many major banks and mortgage lenders already signed up to support this scheme, there should be lots of great deals on offer – however, we’d advise finding a dedicated mortgage broker that can help you get a loan through the scheme.
Right to Buy
The Right to Buy is another Government mortgage scheme, but this one specifically enables council tenants in England to buy their home, sometimes at a significant discount, and even without a deposit as many providers allow borrowers to put their discount towards the purchase price. The mortgage itself will be subject to the usual affordability criteria checks and the discount you will receive can vary based on factors including the property type, location and value of the property.
Generally speaking, the longer you’ve been a council tenant, the bigger the discount you could get. The lender will also want you to meet their affordability and eligibility requirements, so factors including your income and credit rating may be relevant.
However, a specialist lender may be required if you have bad credit, are retired, are self-employed or if the property has ‘non-standard’ construction (such as thatched roofs and timber frames). If you’re concerned you might be turned away, we’d suggest getting in touch with a mortgage advisor that’ll be able to connect you with the provider best positioned to offer you an attractive deal.
The only other con with this scheme is that if you sell your home within the first five years, the landlord has the right to ask for repayment of all or part of the discount, so if you think you’ll likely move within that time frame, maybe consider an alternative scheme. In one of Boris Johnson’s most recent speeches, he expressed his desire to extend the Right to Buy, but as it stands currently, this scheme is set to end for housing association tenants this summer, so you must apply to buy your home by 28 August 2022.
Lifetime ISA
A Lifetime ISA (LISA) is a type of individual savings account that’s designed to help people aged 18-39 buy their first home, save for retirement, or both. It’s a longer-term, tax-free savings account which gives you a 25% bonus from the government on whatever you save up to £4,000 per tax year. Essentially, the government gives you £1 for every £4 you save, you could receive up to £1,000 free cash each year.
In order to buy your first home with the aid of a LISA, you must have opened one at least 12 months before you intend to apply for the government bonus, which must be purchased with a mortgage, not with a full cash payment. This scheme is also for first-time buyers only and can’t be used for buy-to-let properties. What’s more, if you withdraw the money for any other reason than buying your first home and/or before the age of 20, you’ll incur a 25% exit fee.
But if you’re buying a property with another first-time buyer, you can both open up LISA’s and combine them to purchase a home together. Also, you can even transfer your Help to Buy ISA over to a LISA and still receive the 25% government bonus. So, if your plans meet the criteria, a LISA might be the right scheme for you.
95% mortgage guarantee scheme
The new mortgage guarantee scheme was launched in April 2021 to give those looking to buy a home with less than a 10% deposit a range of extra mortgage options. This scheme allows people to get on the property ladder with just a 5% mortgage deposit, which all but disappeared during the coronavirus pandemic. The government has incentivised 95% LTV lending by ‘guaranteeing’ a portion of any mortgage offered under it – meaning they’ll share some of the risks that the mortgage lender is taking on.
It's worth bearing in mind though, that you cannot use this scheme to buy properties worth more than £600,000 and it must be a repayment mortgage rather than an interest-only mortgage. Also, the self-employed could be excluded from this scheme and the loans might not offer the best first-time buyer mortgage rates. Having said that, by speaking to a mortgage broker before you apply, you can gain access to every 5% deposit on the market, which means your chances of landing a good deal will be higher than they would be if you limit yourself to the mortgage guarantee scheme. Also, don’t forget that this scheme will run until December 2022 initially.
