So, my husband and I bought our first property right before we got married in 2012 and back then, a lot of these schemes were not available, so we went down the traditional route of saving up a 10% deposit. Times have moved on, and things have changed so when I now hear comments like “it’s 2020, its too expensive to buy a property” or “it is going to take me years before I can save up to buy a property”, and I am here to tell you all to STOP!!!! The reality is that as a first-time buyer, you can still get on the property ladder. You just have to find what works for you. There is the traditional way to approach this, which I did.
So let’s dispel that myth and let me highlight some of the different schemes available that you can use to help get you onto the property ladder.
1. Help to Buy ISA
IMPORTANT NOTE: Unfortunately the Help to Buy ISA closed on 30 November 2019 but if you already have an account I thought it would still be helpful to know how it could help you with buying your first property.
A Help to Buy ISA account is simply a savings account with a twist and a catch. The twist is that on top of what you are saving, the government gives you 25% of the amount you have saved, yep, free cash monies 🙂
Let’s break it down, so let us say you save £300 in May, the 25% bonus from the government will be:
25/100 = 0.250.25 x £300 = £75So the government will give you £75.
However don’t get too excited because there is a catch, and it is that you can only get a maximum of £3,000 from the government which means to get the full benefit from the government under this scheme, you would have to save £12,000. Now you can save more using the same account; however, for the purposes of getting that 25% bonus from the government, they will only apply it to a maximum of£12,0000 that you have saved. Lets see what that actually means:
You save £12,00025% of £12,000 = (0.25 x 12,000= £3000) So you should see £12,000 + £3000 = £15,000 in your account
2. Help to Buy – Equity Loan
So this scheme is specifically for new build properties which are worth up to £600,000 and what essentially happens is that the government will loan you up to 20% of the cost of the new build property, so you would only need a 5% cash deposit meaning you would only have to take out a 75% mortgage. One of the advantages of this guys, is that you don’t have to borrow a lot from the bank for the mortgage and you could also have access to lower interest rates by virtue of having to borrow less than the normal 90-95%.
However, remember that this is a loan from the government, which inevitably means you have to pay it back. So for the first 5 years of owning your home, you won’t be charged loan fees for the 20% that you’ve borrowed, but after 5 years, you will need to start paying it back. So make sure you really think about this route before taking advantage of this scheme because, after 5 years, your outgoings will definitely go up as you will now need to start repaying the loan from the government. You will of course still be paying back the mortgage loan for the bank as soon as you own the home so also bear that in mind, the bank will not be waiting 5 years lol.
Another important note, if you are buying a property in London, the government could lend you up to 40%, which means you would only need to take out a 55% mortgage. So the 20% loan from the government is for everywhere else, and the 40% is specifically for new builds in the London area. You won’t be charged loan fees on the 20% loan for the first 5 years of owning your home.
Example: Your new build home is worth £300,000 (outside of London)
Your 5% deposit = (5/100) x £300,000 = £15,000 The 20% from the government = (20/100) x £300,000 = £60,000 The mortgage of 75% = (75/100) x £300,000 = £225,000
3. Shared Ownership
Despite having its pros and cons, this scheme can be used to help first-time buyers get onto the property ladder. Simply put, this scheme allows you to buy a share between 25% and 75% of the home’s value of the property you wish to purchase.
The big advantage to this is that you only pay the deposit and the mortgage on the percentage share of the property you own. For example:
Property is worth £400,000 You only want to own 30% of £400,000 Your purchase price is – (30/100) x £400,000 = £120,000 So your deposit on the purchase price of £120,000 = (5/100) x £120,000 = £6,000
So for the property worth £400,000 under the shared ownership scheme, you would only pay a deposit of £6,000 for a 30% share of the property.
However, be mindful because although you are only paying a mortgage on the 30% share you own, you will need to pay rent on the 70% that you don’t own, but the rent is less than the rate normally charged on the open market. Additionally, if you decided you want to own a bigger percentage of the property, you can do so, and this is called “staircasing”. Later on, you could buy bigger shares when you can afford to.
4. Right to Buy
So, if you are a council tenant, live in a council-owned property, fulfil some additional criteria (see my video below) and you wish to buy that home, the right to buy scheme allows you to purchase the council home at a discount. The discount is a percentage off the percentage price of the property you wish to buy. The maximum discount you can have is 70% or if we are talking numbers, or £82,800 (across England) and £110,500 (for London boroughs).
5. Right to Acquire
This follows a similar format to the Right to Buy scheme that you will get a discount off the purchase price of the property but only the difference is that instead of being council tenants, you are housing association tenants.
6. Lifetime ISAs
This scheme allows you to do two things:
1. save up for your first home (to buy a property that costs no more than £450,000).2. save up for retirement. As this post is about buying property, I will not be talking about the retirement element of this scheme.
So what this LISA is similar to the Help to Buy ISA is that the government will top up the money you have in your account, and with this scheme, they will give you a bonus of 25% of what you have in your account every month.
So, for example:
You put £500 into your Lifetime ISA for the year The government’s 25% will give you = (25/100) x £500 = £125 So at the end of the tax year, you will have = £625
However, guys, slow down lol, there is a maximum of £1,000 that the government will top up your account by each tax year, which means the maximum you can save each tax year is £4,000.
7. Stamp duty & Legal fees
Now onto the dreaded stamp duty lol. Now, this isn’t a scheme, but it is very important to mention especially if you are buying a property that you will be liable to pay stamp duty (and of course legal fees). So always consider this when you are saving for your “deposit” as you may also need to save up to pay for stamp duty and legal fees.
So the general rule is that if you are buying a home in England or Northern Ireland costing more than £125,000, you will have to pay stamp duty. There is a banding system they use (similar to that of council tax), check out my video below to see what I mean, but the good news is that at the time of writing this post (February 2020) first-time buyers get stamp duty relief!! So ……….what does that actually mean? Well, first-time buyers will pay no stamp duty on properties that are worth up to £300,000, giving you a saving of up to £5,000.
So there it is, just a brief outline of what is out there that you can explore if you want to get on the property ladder but are feeling overwhelmed with the costs of the whole process.Don’t forget to check out my video on my YouTube channel, which goes into a little more depth with examples and note that it is in 3 parts because it is a lot of information 🙂