The Best Help Available for First Time Buyers in 2022
First time buyers have a number of different avenues that they can choose when buying their first home. With the uncertain economic climate and the recent rise in interest rates you would expect there to be little help available for first time buyers, but it’s not the case. There are many different schemes available such as government backed equity loans schemes which are interest free for five years and further assistance with saving for the deposit with a LISA that earns 25% interest.
Here is a summary of some of the help available to help first time buyers get on the ladder in 2022:
Help to Buy Government Equity Loan
This is probably the most significant help being offered to first time buyers in 2022. The Help to Buy slogan has been used for many years with various different versions of what the help to buy scheme actually is. The latest version was launched in April 2021 and is available until March 2023. The scheme has been used by over 300,000 house buyers and is an extremely generous offer from the government.
The key features are:
- Only available in England.
- You must be a first time buyer.
- You must buy a new build home.
- You pay a 5% Deposit.
- The government will lend you the further 20% deposit or 40% deposit if you live in London.
- The loan is Interest free for 5 years.
- The interest rate on the loan after 5 years is very low.
- When the property is sold you pay back the original loan plus the equity loan percentage share of any equity increase.
The property must be your first home and there is a cap to the property value you can buy for different regions:
East – £407,400
East Midlands – £261,900
London – £600,000
North East – £186,100
North West – £224,400
South East – £437,600
South West – £349,000
West Midlands – £255,600
Yorkshire and The Humber – £228,100
More info on the government Help to Buy Scheme can be seen here.
Help to Buy Government Mortgage Guarantee Scheme
Announced in March 2021, the Mortgage Guarantee Scheme is another measure introduced by the government to help buy a house with a 5% deposit. Rather than providing direct help to the property buyer, instead the scheme provides a guarantee to mortgage lenders so that they can offer a 95% LTV mortgage product with the same risk as if it were a 75% product. As a buyer you will have a 95% LTV mortgage which may have a higher interest and not allow you to borrow as much in an affordability calculator.
- You don’t have to be a first time buyer.
- It doesn’t have to be a new build.
- The property must be worth less than £600,000.
- It must be a repayment mortgage.
More info on how the Mortgage Guarantee Scheme works can be seen here.
Lifetime ISA Account
The Lifetime ISA Account also known as a LISA is a tax free way to save £4000 per year and the government will give you a further 25% on your savings at the time that you wish to withdraw. With a LISA there are only two ways you can withdraw without having to pay a penalty. These are, buying your first property or withdrawing as a pension when you reach 60 years old. There are further stipulations that you need to work within (Seen Below), but what needs to be considered is that if your circumstances change and you wish to receive your money without meeting the withdrawal criteria then you will have to pay a early withdrawal charge fine on your savings which is currently 25%. This charge was temporarily reduced to 20% during Coronavirus but is now back at 25%. It has been measured that early withdrawals trebled during Coronavirus as people had to deal with unexpected changes in their financial circumstance.
Another restriction that first time buyers need to consider is that you can only buy a house with a value up to £450,000. This is fine for many regions across the UK but for buyers in London that ceiling may cause a problem where the average price of a London Flat is £531,853. For Londoner’s the £600,000 cap on the Government Equity Loan is more suitable.
Key features of the Lifetime ISA are:
- The Government adds 25% to your savings.
- You can save up to £4000 a year.
- Can be used to buy a house up to £450,000.
- Can be used as a Pension – Contributions can be made up to 50 years old and withdrawn at 60.
- must be between the age of 18 – 39 to open a LISA.
- Can’t withdraw within 12 months.
- Early withdrawal fine of 25%.
For a more comprehensive guide about a Lifetime ISA see here.
Help for Buyers in Scotland and Wales
Has shared equity schemes called Open Market Shared Equity and New Supply Shared Equity, these are available for first time buyers and people who are on low income, disabled, or have a change of circumstance.
Help to Buy Smaller Developer Scheme provides help with up to 15% of the price of a New Build Home that is registered with the scheme.
Homebuy Wales provides a 30% Equity Loan to those who are already a resident of a local welsh council authority. It doesn’t need to be a new build home and you don’t have to be a first time buyer. Another Interesting feature of the scheme is that if your property drops in value you will only need to owe 30% of the new lower price, meaning that you will not fall into a position of negative equity.
Help to Buy Wales is the Welsh equivalent of the scheme for England.
Key features are:
- Only applies to new build homes.
- You pay a 5% deposit.
- The government provides a equity loan of 20%.
- You must take out a repayment mortgage.
- Only applies for buying a house up to £250,000.
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