With Help to Buy (HTB) done and dusted now that the completion deadline has passed for those final first-time buyers, it’s an important time to shout about all of the other stepping stones that are out there to support that first leap on to the ladder. The void HTB leaves in the market is not going to be an easy one to fill as we know that from April 2013 to the end of September 2022 over 375,000 equity loans were granted totalling nearly £23 billion in value. However, it turns out there already are some alternatives out there in the market, as well as some relatively new schemes too. Maybe First Time Buyers can make use of a government-backed savings product or a specific housing scheme. Some First Time Buyers may even be stuck in rented properties, unable to save for a deposit – Skipton may be able to help with these cases...
Track Record
Skipton is first to the market with its recently released Track Record mortgage in an effort to help get generation rent into home ownership. The scheme is aimed at first-time buyers trapped in the rental cycle where they are struggling to put money aside for a deposit but would like to get on the property ladder, perhaps even buying the property they currently rent. While it’s always better to use a deposit if they have one, and we’ll accept a deposit of less than 5% of the property value if they have it, they don’t need a deposit for Track Record. They must be a First Time Buyer aged 21 or over and have been paying rent for 12 months in a row within the last 18 months. Subject to underwriting and lending criteria. You can find out more on our Track Record Mortgage page.
Housing Schemes
Shared ownership is probably the most well-known housing scheme today. In 2021-22, there were over 19,000 shared ownership properties delivered to the market. This scheme is typically of benefit to those who may not have the full deposit needed to be able to buy the property outright. With a deposit needed of usually between 5% and 10% of the share they are buying, the buyer can buy a share in a property and pay rent on the remaining share, which is usually between 25-75%. As time passes, most schemes have the option for ownership to be increased through staircasing.
A relatively new entrant to the market is that of the First Homes England Scheme. The scheme is designed to help those eligible onto the property ladder, either New Build or re-sale, offering discounts on house prices of 30-50% (compared to the market price set by an independent valuer). This discount is attached to the property in perpetuity. Your clients will need to have at least 5% of the discounted price available to put down as a deposit, and a mortgage in place for at least 50% of the discounted price. Whilst the scheme is establishing itself with many developments still being built, it is important to keep talking about it to raise the awareness of this potential option for your clients.
Government-Backed Savings Products
The government has been providing monetary incentives to First Time Buyers who are regularly saving towards their deposit for several years now. At first, this was with the Help to Buy ISA (HTB ISA) and later came the Cash Lifetime ISA (LISA). Although the HTB ISA is now off-sale, existing HTB savers can still deposit up to £200 per month up to a maximum £12,000, which is then topped up by 25% (up to £3,000) from the government on completion of a property purchase. Existing HTB ISA savers can pay into the ISA until November 2029 and can claim the 25% bonus until November 2030.
Your clients could open a LISA today, and even though the deposit limit is set at £4,000 each tax year, a 25% government bonus is paid on this (up to £1,000) each tax year. This savings product is a real deposit booster as there is no limit on the total balance that can be accumulated! The only string attached is withdrawals can only be made after 12 months from the first payment in, for First Time Buyers to buy their first home with a purchase price of up to £450k. For any other withdrawals before the age of 60 a 25% government withdrawal charge applies.
Buying a Fixer Upper?
An alternative approach to entering the housing market which I think is worth mentioning is buying a fixer upper. Depending on how well worn-in your ‘DIY’ hat is, there can be some real advantages in buying a fixer upper for your first home as they often come to market at a reduced price compared to their ‘ready to move in’ equivalents. It might just be that a fresh lick of paint and new carpets are needed, easy! We have all seen those episodes of Homes Under the Hammer where the property owners make a small fortune from not having to do a lot more than that. For a first-time buyer it may also mean that they can buy bigger earlier, or even closer to their preferred locations – worth it for a small bit of DIY I’d say!
We really shouldn’t undervalue the potential there is in this area of the market - with most people likely preferring move-in ready homes, I think the premiums attached to these properties will likely only continue to rise… meaning - a fixer upper may be the better deal!
We have not yet also mentioned the potential benefits of renovating a property could have to its Energy Performance Certificate (EPC), and the subsequent potential for reducing the running costs and its carbon footprint. Replacing windows, adding insulation, or even something as simple as changing light bulbs could all have an impact. Enticingly, there seems to be a potential positive correlation between EPC rating and property value, with higher EPC rated properties generally attracting greater values – another potential equity booster!
It's worth bearing in mind that there can be issues on properties requiring attention which may be well-hidden to any prospective buyer, particularly on those obviously needing a little work. To help flag such issues before a purchase, I cannot stress enough the value of a professional survey - the outlay now may be well worth it to avoid a bigger spend later!
And don’t forget… if your client doesn’t feel comfortable, they don’t have to proceed!
Final thoughts
The opportunities for First Time Buyers talked through here are just a small snapshot of options to consider with many more out there. However, I think the wider market is in a good place to step up to the mark for First Time Buyers and to gear itself towards supporting these clients in a more economically challenging environment.