If you’re tired of living in a rented home but can’t afford to buy one through the traditional mortgage route, perhaps you should start looking for alternatives ways to get on the property ladder. In this guide, we’re going to talk about the main government schemes aspirant
first-time buyers can adhere to in the UK, their advantages and disadvantages.

Help to Buy Scheme

First-time Buyers - Couple receiving keys to new house.

Help to Buy is an equity loan scheme available to first-time buyers as well as existing homeowners who want to purchase a new build house but who can only afford a small deposit. Under the Help to Buy, the government lends you up to 20% of your future’s home price, so you will only need a 5% deposit and 75% mortgage to pay for the rest.

You can get up to 40% from the government if you live in London, but remember that the maximum you can borrow through the scheme is £240,000 in London and £120,000 elsewhere in England.

You must also repay the interest-free amount within 5 years, or the government will apply an interest of 1.75%.

To adhere to the scheme, you must first take out a mortgage for at least 25% of the value of the property you want to buy, and the mortgage together with your contribution must cover at least 80% (60% in London) of the purchase price. Furthermore, the value of the property cannot exceed £600,000.

Help to Buy is available in England as well as the rest of the UK, although there are different conditions for Scotland, Wales, and Northern Ireland.

Right to Buy Scheme

First-time Buyers - A village house

If you have been a council tenant for at least three years and want to buy the property you live in, you can apply for it under the Right to Buy scheme.

Under this scheme, the government will give you a discount of up to 70% or £82,800 (£110,500 in London) of the property’s purchase price, depending on how long you lived there. Because the discount is not refundable unless you sell the property in the first five years, Right to Buy is one of the most convenient solutions to bump you up on the property ladder.

To adhere to this scheme, you must have had a public sector landlord in the past three years and use the property you want to buy as your main home.

Regarding financing, you can either opt for a standard mortgage or a specialised one, and the good news is that you won’t have to apply for a mortgage without knowing how much your discount is. Most banks and building societies also accept the discount as a partial or total deposit.

The main drawback is that you will have to pay back the entire or part of the discount if  you decide to sell the property in the first 5 years.

Shared Ownership

Shared Ownership comes as a great solution if you can’t afford a mortgage on the entire property. Under this scheme, you can buy between 25% and 75% of your new home. The government will buy the other part, and you will have to pay rent on it until you can afford to buy.

The best part about Shared Ownership is that there is no limit regarding the purchase price of your home.

However, you must be a first-time buyer, a shared owner looking to move,  or, if you owned a home, you can’t afford to buy one now. To be eligible, your household must earn no more than £80,000 a year (£90,000 in London).

Rent to Buy Scheme

If you can’t get a mortgage now, but you believe you’ll be able to get one in the next 5 years, Rent to Buy could be the right solution for you. This scheme lets you rent a newly built home at 20% under the market rate so that you can save for a mortgage deposit and buy the home later.

The lease period typically lasts for up to 5 years, and you are not obligated to buy at the end of it. If you haven’t saved enough or found that the property doesn’t meet your expectations, you can just leave.

If you didn’t manage to save enough money during your lease period, you could also apply for Shared Ownership to buy part of the property.

To be eligible, you must have a good credit history, a household income of up to £60,000 or less (£64,300 in London), and be a first-time buyer or someone who owned a home but can’t afford one now.

Help to Buy: ISA

First-time Buyers - Calculating the costs

Help to Buy: ISA is ideal for those who plan to save money for a deposit and only need a little help from the government. Many banks and building societies offer ISA accounts for your savings, and the government tops them with up to £3,000 if you saved £12,000 or over.

For savings of over £1,600 but less than £12,000, you will get a government top up by 25%.

To be eligible, you must open an ISA account and deposit at least £1,200, then make monthly deposits of at least £200. The minimum bonus you can claim is £400, so you must save at least £1,600 to claim it.

Through this scheme, the ISA accounts and bonuses are available to each first-time buyer, not to the household. In other words, if you’re buying with your partner, you can both open an ISA account and claim a government bonus of up to £3,000 each.

The only downside is that you cannot use this bonus for any deposits due at the exchange of contracts or to pay for solicitor fees and other indirect costs. Instead, the money will be included with the funds consolidated at the completion of the transaction.

Since the schemes above offer solutions to most aspiring homeowners, we hope you can now find the best ways to get on the property ladder so that you can get one step closer to your dream.

We offer a vast range of products that will help you get a foot on the property ladder:

First Time Buyer Mortgages
Help to Buy Mortgages
Right to Buy Mortgages
Shared Ownership Mortgages

If you are unsure which option will suit you best, please fill out a contact form on one of the above pages. One of our advisers will contact you shortly to help.

DISCLAIMER: These articles are for information only and should not be construed as advice. You should always seek advice prior to taking any action.