Incentives for First Time Buyers Explained

Sarah Ryan, Head of Private Client
Author:
Sarah Ryan
Head of Property, Licensed Conveyancer
Date:
02/03/2020

There are a number of incentives available from the UK government to help first time buyers buy a property. We explain the options for first time home buyers and provide all the information you need below.

About the Help To Buy Scheme

There are a couple of options in the Help to Buy scheme. They are “Help to Buy: ISA”, which has now been replaced by the “Lifetime ISA” and “Help to Buy: Shared Ownership”. We’ll look at each option in more detail.

Help To Buy ISA Scheme is now Closed

This scheme closed to new accounts on 30th November 2019.

If you’ve already opened an account, you can continue to save into your Help to Buy ISA until 2029.

You may want to consider transferring your Help to Buy ISA to a Lifetime ISA. It could be beneficial to transfer, but there are more restrictions on a Lifetime ISA so consider your options carefully first.

Open a Lifetime ISA Instead

The Help to Buy ISA closed because of the introduction of the Lifetime ISA in 2017. Many people believe that the Lifetime ISA is actually a better option. Let’s look at what a Lifetime ISA will do.

The Lifetime ISA and the Help to Buy ISA are very similar, but there are some differences. We’ll take a look at Lifetime ISAs and explain how they can work to help you buy your first property.

The main difference between a Lifetime ISA and a Help to Buy ISA is that a Lifetime ISA can be used just as a savings account and the money does not have to be put towards buying a property.

With the Lifetime ISA, you can save a maximum of £4,000 a year and the government will add a bonus of 25% per year, up to a maximum of £1,000.

The other big benefit to a Lifetime ISA is that you can hold cash or stocks and shares in your account or have a combination of both. Before you make any decisions about investments and ISAs, you should get advice from an Independent Financial Advisor.

Do Your Research

You can open a Lifetime ISA from lots of different banks and building societies. It’s best to shop around as the interest rates differ a lot from just over 2% to 3% in some schemes.

Are You Eligible for Help to Buy ISA?

There are some criteria that you have to meet to be eligible to open a Help to Buy ISA. These are:

  • You are at least 16 years old
  • You have a National Insurance Number
  • You are a UK resident
  • You are a first time buyer and you don’t have property anywhere else in the world
  • You don’t already have an active cash ISA.

If you already have an ISA in place, you can still open a Help to Buy ISA, but you will need to complete some other steps first. You can find out more details about what you need to do on the Gov.uk website here.

You will also need to meet certain criteria to be eligible for the government bonus. You:

  • Must live in the UK
  • Must have a property with a purchase price of no more than £250,000 or £450,000 in London
  • Will not own any other property
  • Must intend to live in the property
  • Must buy the property with a mortgage.

You should also know that you are not restricted to buying a new build property with a Help to Buy ISA, unlike some of the other government schemes.

Help To Buy: Shared Ownership

This is an option for any first time home buyer the mortgage to pay for the whole property. Help to Buy: Shared Ownership allows you to own between 25% and 75% of the property and to pay rent on the rest. You also have the option to buy more of the property back at a later date.

You can get a property through Help to Buy: Shared Ownership if:

  • You earn less than £80,000 a year in your household or less than £90,000 a year in London
  • You’re a first time buyer, you owned a home before but now can’t afford one or you are already a shared owner and you want to move.

With Help to Buy: Shared Ownership you can either buy a new build property or consider a resale property through housing associations.

You will take out a mortgage to cover the pay for the percentage of your share of the property price and you will pay rent on the other share of the property.

To buy a Help to Buy: Shared Ownership property, you should contact the Help to Buy Agent in your area. You can find details on the Gov.uk website.

Help To Buy: Equity Loan

This option only applies to new build properties so if you don’t want to buy a new build, this scheme is not for you.

With a Help To Buy: Equity Loan, you can borrow up to 20% of the cost of a new build property. You’ll need a 5% deposit and you’ll borrow the other 75% through a mortgage.

In addition to the loan from the government, you won’t be charged any loan fees on the amount in the first 5 years.

Once you sell your property, you’ll get back 80% of the sale value and you’ll pay back 20% of the sale value, which will probably be more than the loan was originally.

Because of the high property prices in London, the government introduced London Help To Buy. This means that in London the government will loan you 40% as an equity loan.

You are eligible to apply for an equity loan from the government if you are a first time buyer or an existing homeowner. The maximum cost of the property must be no more than £600,000. You cannot sublet the property once you’ve purchased it or apply for a part exchange on your current home. This is because you cannot own any other property when using a Help to Buy: Equity Loan.

You must also live in England as this scheme is only available in England. Scotland, Northern Ireland and Wales have their own schemes so check their websites for more information.

You can see there are a number of options to consider if you are a first time buyer. Look at them all carefully and choose the option that suits you the best.

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