Buying a home for the first time can seem like a distant dream for many people with house prices remaining stagnantly high, stringent mortgage requirements, coupled with poor interest rates bringing down savings. But if you are looking to buy your first home, there are money moves you can make to help you climb the property ladder. We discuss the options for first-time buyers.
Lifetime ISA
Recently launched, the new lifetime ISAs (LISAs) are a great way to build up your savings if you are under 40 and looking to buy your first home. You can save a maximum of £4,000 a year into it, but the best bit is that the government will top it up with a 25% bonus when you buy your first house. If you end up not using it for your first home, then it can be used for a pension instead.
LISAs are attractive because of the bonus — if you were to start at age 18 and continue to pay the maximum £4,000 until you’re 50, you’d end up with a whopping cash sum of £32,000. But there are rules – you must open a LISA before your 40th birthday and you can only use the money for a first home or retirement, otherwise you will not get the bonus.
Help-to-buy ISAs
If you’re over 40 and can’t take advantage of the LISA, then don’t worry, because there’s the help-to-buy ISA instead. The help-to-buy ISA is for first-time buyers. You can save up £1,200 in the first month and then up to £200 a month. The maximum you can save into a help-to-buy ISA is £12,000. As with the LISA, you will also benefit from the 25% government bonus, as long as you have saved the minimum of £1,600.
So, for example, if you manage to save the maximum £12,000, you’d benefit from a government bonus of £3,000. If you only manage the minimum £1,600, you’d still get a handy bonus of £400. The bonus is paid when you buy your first home – the solicitor or conveyancer will apply it.
Again, there are some rules – your first home must be worth £250,000 or less and £450,000 or less if in London. The bonus is used to reduce your mortgage payments and not put towards your deposit.
You have until 30 November to apply for a help-to-buy ISA, as the scheme is closing after that. Once opened, you can claim the government bonus and pay into it until 30 December 2030.
Help-to-buy equity loan
You can apply for a low-interest equity loan from the government if you are a first-time home buyer, looking to buy a new build with a purchase price of up to £600,000. The property must not be rented or sub-let. To buy, you will need a 5% deposit, and the government will lend you 20% (40% if buying in London) of the property price and you then have to find a mortage for 75%. You have to buy your home from a registered help-to-buy builder.
The help-to-buy equity loan can take the edge off the financial pressures first-time buyers face when trying to get a mortgage.
Shared ownership
If you really can’t afford to buy something, then shared ownership allows you to part buy and part rent. Your total household income must be less than £80,000 (£90,000 in London) and you have to be a first-time buyer.
The bank of mum and dad
Finally, let’s not forget the bank of mum and dad. More people are turning to parents for financial help than ever before. Rather than handing over the cash, parents who want to help their children onto the property ladder can use initiatives like the ‘Barclays Springboard’ or ‘The Family Mortgage’ instead.
The Barclays Springboard for example, doesn’t require the buyer to have a deposit as long as mum and dad provide 10% of the property price as security – this is put into a three-year fixed rate savings account and returned with interest… as long as the kids must keep up with the mortgage repayments.
This a strong option for first-time buyers who are struggling to raise a deposit but can manage monthly payments.
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