A guide to mortgage & deposit schemes

If you’re unable to borrow the amount you need or are struggling to save a large enough deposit, it is worth exploring the below special schemes to help you get on the property ladder.

With house prices at a record high, it really is harder than ever to buy your first home so it’s worth understanding the different government schemes available to help. Here are some of the most popular:  

Help to Buy equity loan (HTB)

The Help to Buy equity loan is a scheme for first time buyers to help you buy a new build home with a small deposit and a smaller mortgage.  

You can only apply for the scheme if you are looking to buy from a participating new build development, but it does mean you would only need a 5% deposit and the government will give you a loan for the rest. The maximum equity loan outside Greater London is 20%, whereas inside Greater London you can get up to 40%.  

E.g. If you were buying your first home for £170,000 in Manchester and claimed the full 20% HTB loan, you would need to raise £8,500 yourself, and the government would give you a £34,000 loan so your total deposit was £42,500. This would mean you’d only need to get a mortgage for the remaining £127,500, which is a 75% loan-to-value.

In terms of paying back the loan, the initial 5 years is interest free and no payments are due. After then, a variable interest rate is charged until you pay the loan off in full. Some people will opt to pay the loan off in full straight away using savings they’ve built up, or they may raise funds from re-mortgaging or selling the home. An adviser can help you work out the best option for you based on your circumstances.  

It’s also important to note that you repay the same percentage that you borrowed, so if your home increases in value, you pay more back than you borrowed (likewise if the value decreases).  

E.g. If you bought the home for £170,000 but the value increased to £180,000 at the end of the 5 years, the total loan amount you would need to repay is 20% of the £180,000, so even though you only borrowed £34,000, you would need to repay £36,000.

The Help to Buy equity loan Scheme is due to close in March 2023. If you want to know more or apply, you can do so here: https://www.gov.uk/help-to-buy-equity-loan  

Shared ownership

The shared ownership scheme is for first time buyers only who have a household income of less than £80k, or £90K in London. It lets you buy a percentage of the full value of a home and pay affordable rent on the other percentage.  

It’s not something you can do on any home, you are limited to specific properties and developments owned by housing associations, but it does make buying a home more affordable up-front because you only need to get a mortgage on the share you own, and therefore the amount of money required for a deposit is usually a lot lower too.  

In terms of how it works, when you buy a Shared Ownership home, you decide what share in the property you can afford to buy from the housing association. This can be anything from 10% to 75% of the value of the home. You would need to put down a deposit of at least 5% of your share and take out a mortgage to cover the rest. You then pay rent on the part you do not own.

E.g. You find a Shared Ownership home which has a total value of £150,000. If you were to buy a 50% share, the total you’d need to pay would be £75,000 split between a £3,750 deposit and a £71,250 mortgage. You would then pay rent on the other 50% which is something that can vary property to property, so make sure to check that before making any commitments.

Alongside the mortgage payments and rent payments, it’s also worth pointing out that you usually need to pay ground rent and service charges on top so, before rushing into anything, make sure you work out the total monthly cost so you know you can afford everything.  

Over time, you can increase the share you own in the property until you own the full 100%, through a process known as stair-casing. But it’s important to note, alongside the cost to buy the additional shares, you will also need to pay for a surveyor report to value the property and appoint a solicitor to oversee the process. You’ll likely need to have around £2,000 for this.  

If you want to know more or apply for a Shared Ownership scheme, you can do so here: https://www.gov.uk/shared-ownership-scheme  

First Home

The First Home scheme is the newest of the schemes, first piloted in 2021. It is designed to help first-time buyers in England onto the property ladder by offering homes at a discount of 30% compared to the market price. In some areas, the discount could be as high as 50%.

The discounts will apply to the homes forever, meaning that any subsequent buyers will also receive the discount, so the home is permanently affordable.  

Because it’s a fairly new scheme, the number of homes currently available is limited, but a programme of 1,500 First Homes is being rolled out over the next 2 years and the plan is that, in the future, First Homes will be available all across England.  

To be eligible for the scheme, your household income must be less than £80,000, or £90,000 in London. You’ll be required to raise a minimum of a 5% deposit and then get a mortgage to cover the rest. This needs to be a minimum of 50% of the purchase price.  

Further rules around if you’re a key worker or local to the area you want to buy in may also be applicable. You should check with the developer before viewing.    

If you want to find out more or apply for the First Home scheme, you can do here: https://www.gov.uk/guidance/first-homes  

Lifetime ISA’s (LISA)

A Lifetime ISA is a special saving account that lets you save up to £4,000 per year, with the government paying you a 20% bonus on whatever you pay in. That means you could get up to £1,000 of free cash each year, making it that little bit faster to raise the deposit for your first home.  

Anyone aged 18-39 can open a Lifetime ISA, but you can only access the money (including the money you’ve deposited and the bonus) when you go to buy your first home.  

It’s certainly a helpful scheme, but there are some important considerations. You have to have held the account for at least a year before you can claim any bonuses.  

Also, anything you deposit into the account will count towards your annual ISA allowance. So, if have another ISA such as a Stocks and Shares ISA or a Cash ISA, you will need to make sure your savings across all of them are below the £20,000 limit.  

There’s also a restriction to the scheme in that the bonus will not be paid if your property price is above £450,000. If this is the case for your situation, you may be best using the Lifetime ISA to support your retirement income instead because, once you turn 60, you can access the funds tax free and still claim the bonus.  

If you have any questions about any of the schemes, you can book to speak to our advisers or speak to us on webchat.

For more info visit https://www.ownyourhome.gov.uk/all-schemes/  

Your home may be repossessed if you do not keep up repayments on your mortgage

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