First-time buyer opportunities

First-time buyer opportunity

There has been an increase in the number of mortgages offered to borrowers with small deposits recently which may provide a fantastic opportunity for first-time buyers to get onto the housing ladder as soon as they can. Borrowers with only a 5% deposit are now experiencing more competitive market conditions so therefore better interest rates are now achievable on 95% Loan-To-Value (LTV) mortgages. Defaqto, the independent financial information business, have found that the average fixed interest rate on a 95% LTV mortgage for 2 years had fallen from 3.98% to 3.46% in the past 12 months.

There are a number of initiatives for first-time buyers to support their attempts at getting on the housing ladder such as Help to Buy, Lifetime ISA’s and various other government schemes such as shared ownership and equity loans.

For first-time buyers who are a bit cautious about purchasing a property, fixed interest rates for a certain period of time are very popular and as the market for fixed-rates is very competitive, there are some low interest rates available.

It is advantageous to be fully aware of what you are eligible to borrow and what you can afford to borrow when looking to purchase your first home.

Help to Buy: Equity Loan – Government lends you up to 20% (40% in London) of the cost of a new-build home so you only need a 5% deposit. Your mortgage will then need to cover 75% of the house cost. The loan is interest-free for the first five years and then 1.75% interest is charged in the sixth year and this increases with RPI +1% for each year after this.

Help to Buy: ISA – This is a savings scheme similar to traditional ISAs. You may also receive a 25% government bonus on the fund saved to date when you purchase your house. The maximum bonus entitlement however, is £3,000. The scheme is due to end this year so you must have opened your ISA by 30th November 2019 and have claimed your bonus by December 2030. You are only able to save £200 monthly apart from month 1 where you can save £1200. The bonus can only be claimed once the balance of your ISA is £1,600.

Lifetime ISA – This is another savings scheme to help first-time buyers but is open only to those aged between 18 and 40. The fund in the ISA can be used as a way to save for retirement or a mortgage. You can deposit up to £4,000 a year and the government will give you a 25% bonus until you are 50. You must be aware of the 25% penalty (including the bonus) if the fund is withdrawn partly or in full for any reason other than retirement or a first home so you lose your bonus plus 6.25% of your initial investment as well (£8,000).

Shared ownership – This scheme provides a way for buyers to purchase a proportion of a property (between 25% and 75%) and rent the rest. You can purchase a new-build or an existing home through a housing association. There’s the option to increase your share in the property later on (staircasing). The scheme is open to first-time buyers aged over 18 who have a household income of less than £80,000 (£90,000 in London).