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Given the difficulties for young people getting onto the property ladder, Tom Hussell and Laura Dagnall, Conveyancers in the residential property team with QualitySolicitors Parkinson Wright explain some of the help available to first-time buyers in terms of government-backed schemes and other sources of support.
Government-backed schemes
There are several government-backed schemes aimed specifically at first-time buyers. These include:
First Homes scheme
This scheme helps first-time buyers buy a new-build home at a discount to market value. However, you and any co-buyer must meet certain conditions. For example, your joint income cannot be more than £80,000 (or £90,000 in London). Unlike shared ownership schemes, there is no rent to pay. However, you will have to comply with certain conditions during your ownership. For example, you may not be able to let your property for long periods. In addition, when you come to sell, you must comply with the scheme’s rules. This limits who you can sell to. In addition, a percentage of the sale proceeds, reflecting the original discount, will go back to the government.
Freedom to Buy scheme
This is a type of mortgage guarantee scheme, backed by the government but offered by individual lenders. It helps home buyers access higher loan-to-value mortgages without the requirement of a large deposit. Many mainstream lenders, such as Halifax and Barclays, offer mortgages that only require a five per cent deposit. For some, this can be a good route to home ownership. However, you must still prove you can afford the repayments. Having a small deposit also increases the risk of negative equity which could become a problem if house prices dip in the future.
Lifetime ISA
A Lifetime ISA can help you save for a deposit, with the government adding a 25 per cent bonus to your savings up to a maximum of £1,000 each year. As with any financial product, it is important to ensure it is right for you. There are, for example, penalties for unauthorised withdrawals from Lifetime ISAs, which have caught some savers out, and it is a good idea to get independent financial advice before committing yourself.
Help to Buy ISA
The Help to Buy ISA is no longer available to new savers. If you have been saving into one though, you can continue to do so until November 2029 and you have a further year to claim the 25 per cent bonus the government will add to your deposit when buying your first home. For some savers, it may make sense to transfer their savings into a Lifetime ISA, and if you have a Help to Buy ISA this is something you should consider discussing with your financial adviser.
Stamp duty land tax and first-time buyers
Stamp duty land tax (SDLT) is a tax payable on the purchase of residential property based on its value. As a first-time buyer, you should benefit from a lower rate of SDLT. If the property you are buying costs £300,000 or less then no SDLT is payable, and there is a reduced rate for homes costing between £300,000 and £500,000.
HMRC, however, has a particular definition of a first-time buyer and you should check with your solicitor that you meet the criteria. To be regarded as a first-time buyer you must not have previously owned an interest in land. And if you are buying with someone else then you must both satisfy HMRC’s definition. This can cause issues for couples where one has previously owned a home.
Local authorities and housing associations
Shared ownership schemes
These schemes let you buy a share in a property and pay rent on the share you do not own. You can buy additional shares in the property until you own it outright.
Shared ownership homes are offered by housing associations, local councils and others. To be eligible you must meet certain criteria. This usually means your household income must be £80,000 a year or less (£90,000 in London). Some schemes may also require you to have a connection to the area you want to buy in.
Shared ownership can be a good way of affording your first home. However, you should first understand the advantages and disadvantages of any scheme. There are, for example, usually restrictions on who you can sell your share to, which could affect your home’s marketability in the future.
The Bank of Mum and Dad
Estimates suggest half of first-time buyers get financial help from family. For many, these arrangements work well. However, before accepting help, you should all be clear about the terms of the arrangement. Setting this out clearly in a legal document can avoid disputes arising in the future.
Loans and gifts can also affect the amount of tax payable. So, it is important to discuss your plans with your solicitor early on.
- A gift - If you are taking out a mortgage, your lender is also likely to require a gifted deposit letter. This is confirmation the deposit is a gift not a loan, and that the donor has no interest in the property. This is something you and your family will need to bear in mind when deciding the nature of any support.
- A loan - If the money is intended as a loan, this can be more problematic. This may affect your ability to take out a mortgage, or how much you can borrow, from a mainstream lender.
Banks and building societies
There is a wide range of mortgages aimed at first-time buyers, some of which allow you to borrow based on higher multiples of your salary. For example, a ‘family springboard’ mortgage lets you borrow up to 100 per cent of a property’s value by linking it to a relative’s savings. An independent mortgage adviser can help you explore what is available.
These types of mortgages can make it easier to borrow initially. However, it is still important to ensure you can afford the repayments, bearing in mind circumstances may change in the future.
How we can help you
At QualitySolicitors Parkinson Wright we understand that buying your first home is not only a major financial commitment, but also an important milestone in your life. So, as well as ensuring your investment is legally correct and protected, we work hard at demystifying the conveyancing process. Our goal is to make the journey to homeownership as smooth as possible for you.
Having a conveyancer who explains things clearly and who keeps you updated is key. This will keep your purchase on track and as stress-free as possible.
For further information, please contact Tom Hussell, Laura Dagnall or a member of the residential property team on 01905 721600 or via email worcester@parkinsonwright.co.uk Offices at Worcester, Droitwich and Evesham.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.