The complete first-time buyer mortgage guide
In this brief guide, we are going to discuss everything about being a first-time buyer and how you can get on the property ladder as a first-time buyer. We will discuss first-time buyer mortgages, first-time buyer ISA, the first-time buyer stamp duty and first-time buyer mortgages.
What qualifies you as a first-time buyer?
first-time buyer definition: A first-time buyer is anyone who has never had any interest in property or land anywhere in the world.This means you have never owed any freehold or leasehold property or any interest in any freehold or leasehold property before. You must also be purchasing your main and only residence. In the UK, you will have to sign a first-time buyers declaration to certify that you are a first-time buyer.
How do you start the process of buying a house?
As a first-time buyer, the process of buying a house may at first appear daunting to you but it is relatively simple. To start the process of buying a house you should first contact an estate agent or go online and conduct a brief search to see what properties are within your budget. If you don’t know what your budget is then you should contact a mortgage broker who will assess ability to get a mortgage( if you need one).
The process looks like this:
- Find a house within budget
- Engage a mortgage broker
- Get a mortgage in principle
- Make an offer on a house
- Get an authority to proceed from a government scheme (if relevant)
- Get a formal mortgage offer
- Get a house survey
- Exchange contracts
- Complete on your house purchase
Can I buy a house with low income?
Yes, there are many first-time buyers with low incomes. You can buy a house with a low income. There are many first-time buyer government schemes which could make it much easier to buy a house with low income.
Can my wife buy a house as a first-time buyer?
Yes, your wife would be able to buy a house as a first-time buyer if she is buying it alone and you are not buying it jointly.You can also buy the house jointly with certain government schemes such as a life time ISA and the help to buy ISA but you won’t be able to buy jointly with other schemes if you are not a first-time buyer e.g the help to buy equity loan.
How does first-time buyer ISA work?
When referring to the first-time buyer ISA you could either be referring to the Help to buy ISA or the lifetime ISA.
The help to buy ISA and lifetime ISA both work by providing you with a government bonus on your ISA savings which you can use on eligible properties if you are an eligible first-time buyer. You will have to sign a first-time buyer declaration.
First-time buyer mortgage
There are many mortgage lenders which now offer first-time buyer mortgages and offer specific mortgage products such as first-time buyer mortgages to first-time buyers so they can get on the property ladder much easier.
Types of first-time buyer mortgages
There are several mortgage lenders offering a different variation of a first-time buyer mortgage, this includes:
the Barclays family springboard mortgage
the Lloyds lend a hand mortgage
the post office family link mortgage.
Each one of these mortgages works in its own unique way. We will briefly define how they work and what some of their benefits are.
The Barclays family springboard mortgage
The Barclays family springboard mortgage is a type of first-time buyer mortgage where your family members or friends put away 10% of the property price in a Barclays saving account over 3 years for a fixed interest rate. This means you will get a 90% loan to value mortgage.
You get a fixed rate on your mortgage for 3 years and after the 3 years, you move on to the mortgage lenders standard rate.
Your family member will get back their savings plus interest after 3 years if you have made all your mortgage repayments on time.
If you have not made all your mortgage repayments on time or defaulted on your mortgage then the home could be repossessed and your family members may have their funds held for much longer.
The Lloyds lend a hand mortgage
The Lloyds lend a hand mortgage is a type of first-time buyer mortgage which is similar to the barclays family springboard mortgage where a family member puts away 10% of the property price in a Lloyds saving account for 3 years at a fixed interest rate. This means you will get a 90% loan to value mortgage.
The Lloyds lend a hand mortgage will then allow you to get a fixed-rate mortgage fo the first 3 years after which you will move over to the mortgage lenders standard variable rate.
Your family member will then get their savings back after 3 years if you have made all your mortgage repayments on time.
If you have missed your mortgage repayments then the mortgage lender may hold your family members funds for much longer. This could also be the case if you have defaulted on your mortgage and the property has been repossessed.
The post office family link mortgage.
The post office family link mortgage is a type of first-time buyer mortgage where your family member uses 10% of a mortgage-free property to fund your mortgage deposit. You and the family member will be on the deed of your new mortgage and the mortgage lender will offer you a mortgage with a loan to value of 90% meaning you don’t need to pay any mortgage deposit towards this specific type of first-time buyer mortgage.
For the first 5 years of the mortgage, you will make two payments. One towards your family members 10% equity which is an interest-free advance to you. You make the second payment towards your 90% loan to value mortgage..
After the first 5 years, you will revert back to making one mortgage repayment towards your mortgage.
The first-time buyer mortgage by the Nationwide building society is a type of first-time buyer mortgage where your family member needs to already have a mortgage with the Nationwide building society. Your family member can then borrow more to fund your mortgage deposit but you will then need to get a mortgage through the nationwide building society.
The family mortgage from the family building society is a type of first-time buyer mortgage where your family member can use the equity in their home or their savings as security for your mortgage so you can get access to mort affordable first-time buyer mortgage rates.
You will still need to put down a mortgage deposit of at least 5 % and your family members can provide security of up to 25%.
They can do this in one of three ways:
Use the equity tied up in their home with the Security Through Property option provided by the family building society
Deposit money in a savings account that earns interest with a Family Security Account
Deposit money in a Family Offset Account that doesn’t earn interest but reduces the cost for the borrower by reducing the mortgage on what interest is charged
The first-time buyer mortgage from the Loughborough building society is a type of first-time buyer mortgage where equity in your family members property or their savings can be used as a security for your mortgage and in some cases both.
You may be able to assess up to 100% loan to value rates from the Loughborough building society first-time buyer mortgage.
First-time buyer mortgage rates
first-time buyer mortgage rates are increasingly becoming more competitive as many mortgage lenders have now entered this space.
Some of the leading first-time buyer mortgage rates are below:
The first-time buyer mortgage rates below are based on a property value of £250,000 with a mortgage deposit of £17,400 over 25 years. You will be borrowing £232,600 on a capital repayment mortgage. The table does not take into account any government schemes which could potentially reduce your loan to value from 93%.
This table was generated on 23/10/2019. You can use this to reference the term of the initial rates given below.
|Lender||Monthly payment||Initial rate||Lender fees||APRC||Initial cost|
|HSBC||£1,065.88||2.69%fixed until 31/01/2022||£0||3.97%||£26,647.00||Representative example: A repayment mortgage of £232,600 over 25 years, representative 4.0% APRC. Total amount payable: £367,119.02. Includes interest of £134,519.02, Valuation fee of £0, Booking fee of £0 and Administration fee of £0. Repayments: 25 monthly repayments of £1,065.88 at 2.69% (fixed), then 275 monthly repayments of £1,238.08 at 4.19% (variable).|
|Hanley Economic |
|£1,067.07||2.70%fixed until 31/10/2021||£349.00||5.10%||£23,824.54||Representative example: A repayment mortgage of £232,600 over 25 years, representative 5.1% APRC. Total amount payable: £411,885.54. Includes interest of £178,936.54, Valuation fee of £0, Booking fee of £349 and Administration fee of £0. Repayments: 22 monthly repayments of £1,067.07 at 2.70% (fixed), then 278 monthly repayments of £1,395.90 at 5.44% (variable).|
|The Melton Mowbray building society||£1,077.78||2.79%variable for 36 months||£260.00||4.54%||£39,060.08||Representative example: A repayment mortgage of £232,600 over 25 years, representative 4.5% APRC. Total amount payable: £389,461.38. Includes interest of £156,601.38, Valuation fee of £260, Booking fee of £0 and Administration fee of £0. Repayments: 36 monthly repayments of £1,077.78 at 2.79% (variable), then 264 monthly repayments of £1,327.28 at 4.99% (variable).|
|Post office mortgages||£1,078.97||2.80%fixed until 30/09/2021||£505.00||4.51%||£23,163.37||Representative example: A repayment mortgage of £232,600 over 25 years, representative 4.5% APRC. Total amount payable: £388,381.32. Includes interest of £155,276.32, Valuation fee of £310, Booking fee of £195 and Administration fee of £0. Repayments: 21 monthly repayments of £1,078.97 at 2.80% (fixed), then 279 monthly repayments of £1,309.02 at 4.74% (variable).|
|Leek United building society||£1,084.95||2.85%fixed until 28/02/2022||£0.00||5.26%||£28,208.70||Representative example: A repayment mortgage of £232,600 over 25 years, representative 5.3% APRC. Total amount payable: £418,708.02. Includes interest of £186,108.02, Valuation fee of £0, Booking fee of £0 and Administration fee of £0. Repayments: 26 monthly repayments of £1,084.95 at 2.85% (fixed), then 274 monthly repayments of £1,425.18 at 5.69% (variable).|
The first-time buyer mortgage rates were accurates as the time of writing but may have changed since then. You should check for up to date rates with each mortgage lender or through your mortgage broker.
First-time buyer mortgage calculator
To see what first-time buyer mortgages you may be eligible for you should consider using a first-time buyer mortgage calculator.
Most mortgage lenders have a first-time buyer mortgage calculator which you can use on their website. A standard mortgage calculator may also give you an indication of what you may be able to borrow.
First-time buyer stamp duty
The first-time buyer stamp duty is a tax relief which was recently introduced to help first-time buyers in England or Northern Ireland. The first-time buyer stamp duty essentially states that first-time buyers who are buying a property worth up to £300,000 will not pay any stamp duty.
This means if you are a first-time buyer, you will save up to £5,000.
first-time buyers who are buying property worth up to £500,000 will pay no Stamp Duty on the first £300,000 but pay Stamp Duty on the remaining amount up to £200,000.
If you are a first-time buyer and the property you are buying is worth over £500,000 then you will pay the standard rates of Stamp Duty and will not qualify for first-time buyer stamp duty relief.
first-time buyers who are buying under the shared ownership scheme can now claim first-Time Buyers Stamp Duty relief on homes worth up to £500,000. This change only applies to homes purchased on or after 22 November 2017.
If you chose to pay Stamp Duty in stages and were previously not eligible for the relief, you can now claim this tax back. To claim a refund, complete an SDLT return. You will have to meet the first-time buyer stamp duty eligibility requirements. If you chose to pay Stamp Duty on the market value of the property, your entitlement to claim the relief, subject to the eligibility requirements, has not changed.
“If you’re married and jointly buying a property, then you both need to be eligible first-time buyers to get First-Time Buyers Stamp Duty relief.
Unmarried people can still get a reduction in Stamp Duty, if the only person named on the mortgage deed is a first-time buyer.
But, there are a couple of things you need to be aware of:
First, the maximum saving on a property purchase is still £5,000 regardless of the number of names on the mortgage deed.
If the mortgage application is only in one name, it will be based on that person’s income alone, which might impact how much your lender is prepared to lend you.
Second, you need to think about what would happen if you split up. If the property is in both names, you will both have a claim. If the property is only in one name, then it’s possible you or your partner could be left with nothing legally.”
First-time buyer scheme
There are an abundance of first-time buyer schemes which are available on the market. Most of these schemes are provided by the Government but there are some first-time buyer schemes provided by private companies.
Getting on the property ladder has become increasingly difficult over the past few years. Luckily, the UK Government has been trying to level the playing field with first-time home buyer schemes, some schemes do apply to those who aren’t first-time homebuyers.
Let’s take a dive into all the home buyer schemes currently available in the UK
Home Buying scheme basics
To stay in line with expectations, it is important to note that most first-time buyer schemes will require some income and some money already saved up as a mortgage deposit. Most first-time buyer schemes are innovative ways to borrow or simply discounted borrowing. Some first-time buyer schemes don’t necessarily help you get a home directly but rather help you save a mortgage deposit tax free.
Some of the first-time buyer schemes include:
Forces help to buy
What is the forces help to Buy?
For those serving in the armed forces. A special scheme is in place to offer reduced initial costs.The scheme offers armed services personnel to borrow up to 50% of their salary at no cost. This is available for first-time buyers and home movers.The maximum loan is £25,000.
Am I eligible for the forces help to buy?
You need to:
- have completed a minimum length of service
- have more than six months left to serve when applying
- meet the right medical categories
In some cases, the scheme can still be qualified for without meeting the above criteria. E.g medical situations.
Shared ownership scheme
What is the shared ownership scheme?
The help to buy shared ownership is a first-time buyer and home mover scheme which allows first-time buyers and home movers to buy a minimum25% of the shares in a home and then pay a subsidized rent on the rest. You can then go on and purchase more shares in the home through a process known as staircasing.
To be eligible for the shared ownership scheme you will need:
To be a UK resident
To have an annual maximum household income of £80,000 outside London & £90,000 in London and a monthly income which is at least 65% more than the monthly cost of the shared ownership property you intend to purchase. This, of course, depends on the price of the property and how much you want to purchase(which will directly affect the rent you pay).
Be a first-time buyer or you used to own a home but can’t afford to buy one now or are an existing shared owner looking to move.
What is the Lifetime ISA?
The Lifetime ISA is a first-time buyer ISA which can be used for first-time buyers to get on the property ladder or retirement savings.
The Lifetime ISA is a first-time buyer ISA which allows you to put a maximum of £4000 away each year and receive a government bonus of up to £1000 a year( 25%).
What you need to know about the Lifetime ISA
- You must be between 18-40 years old & a Uk resident to open a LISA
- You can only withdraw your LISA ( penalty free) before 60 to buy your first home
- Your first home must be below £450,001
- You will face a Government penalty of 25% if you withdraw your LISA before 60 and do not use it for a home
- You can transfer your current ISA into your LISA and transfer your LISA out but you will have to pay the 25% charge for this if it is done before you are 60.
- Interest earned on your LISA as well as the 25% Government bonus is tax free
Who is eligible to open a Lifetime ISA?
You must be 18-40 years old and a UK resident to open a LISA.
Who qualifies as a first-time buyer?
A first-time buyer is someone who does not own any property in the World. This includes property in a will, trust or as a result of a divorce.The maximum house price you can purchase utilizing the LISA is £450,000. Most first-time buyer ISA requires you to be an eligible first-time buyer.
You can purchase a property with someone else on a LISA but the maximum property price does not double and the other person doesn’t have to be a first-time buyer.You can also use the LISA with other first-time buyer schemes such as the Help to buy equity loan scheme.
Can I open my Lifetime ISA with other ISAs?
Yes you can open your lifetime ISA with other ISAs as long as you don’t exceed your current ISA allowance for the tax year which currently stands at £20,000 or open two of the same types of ISAs e.g two cash ISAs in one tax year.
You can however not use the bonus for both the lifetime ISA and help buy ISA when purchasing a home. You will have to pick which one you use to buy a new home and any funds withdrawn from the other types of ISA products will incur a withdrawal penalty.
When can I withdraw money from my Lifetime ISA?
You can withdraw your money before the age of 60 as usual although you will face a Government withdrawal penalty of 25% or you can withdraw it when buying a first home under £450,000 without any penalty.
The property must be a mortgaged property and you can only utilize the LISA 12 months after opening it with your solicitor acting on your behalf to ensure your LISA bonus is activated and LISA account is closed without any penalty. If your property purchase is taking more than 90 days you can contact HMRC for an extension.
If you fail to buy a property you can return all the funds and the interest missed will be paid and it will not be classed as a withdrawal.
You can of course always withdraw your money after age 60 and above with no penalty whatsoever.
When will a Lifetime ISA withdrawal charge not apply?
A withdrawal charge won’t apply if you’re:
using it towards a first home
terminally ill with less than 12 months to live
transferring to another Lifetime ISA with a different provider
If you die, your Lifetime ISA will end on the date of your death and there won’t be a withdrawal charge for withdrawing funds or assets from your account.
How is the Government bonus paid on my Lifetime ISA?
The Government bonus will be paid monthly from 2018 and this will allow you to earn more interest on the cumulative deposits.
How long can I contribute to the Lifetime ISA?
Contributions to your LISA end when you turn 50.
*As with all investing, your capital is at risk. Tax rules may change in the future. If you are unsure if a Lifetime ISA is the right choice for you, please seek independent financial advice.Compared to a pension, the Lifetime ISA is treated differently for tax purposes. You may be better off contributing to a pension.Please seek independent financial advice. *
Right to buy
What is the right to buy scheme?
The right to buy scheme is a scheme which allows council tenants to buy their council homes at a discount. If you are a first-time buyer then this could be your way onto the property ladder but you do not need to be a first-time buyer to use the right to buy scheme.
“You can get a discount on the market value of your home when you buy it if you qualify for Right to Buy.
The maximum discount is £82,800 across England, except in London boroughs where it’s £110,500. It will increase each year in April in line with the consumer price index (CPI).
The discount is based on:
how long you’ve been a tenant with a public sector landlord
the type of property you’re buying – a flat or house
the value of your home”
The help to buy equity loan
What is the Help to Buy equity loan??
The Help to buy equity loan scheme is a government first-time buyer scheme that requires a 5% deposit and the Government will provide you another 20% in the form of a 5 year interest free loan(after which it is 1.75%).This then rises each year by the retail prices index(RPI) inflation measure + one percentage point. Assuming RPI is 4%, the interest rate would rise by 5% (4% + 1%). It is important to note that you only pay the interest from year 6 and not the capital repayments itself.
The Help to Buy equity loan is only available for new builds, in England it’s only available for those buying a new build worth less than £600,000 (£300,000 in Wales, and £230,000 in Scotland). The scheme was set up to increase the supply of affordable housing in the UK.The help to buy equity loan is competitive as the 5% + 20% deposit puts you in a better Loan to Value band and hence a cheaper mortgage.The Help to Buy equity loan scheme is accepted by most mortgage lenders in the UK.
Interest-free for life Help to buy equity loan in Scotland.
The Scottish Government are more generous and will never charge any interest but rather they will retain 20% of the property value when the property is sold.
This means that if property prices rise the government can make some money from that rise and vice versa.
Paying the Government back
You can pay back some or all of your equity loan without selling your home. You can make a partial payment called ‘staircasing’. This will only be accepted if it is 10% of the current property value or you are clearing the whole of the loan with the lender.
A home costs £400,000. You provide a 5% deposit of £20,000 and the government loans you another £80,000(20%). You then take a mortgage of £300,000(75%).The government loan effectively pushes down your LTV and ensures the loan is affordable.
Tip: combine the Help to buy Equity loan with the Help to Buy ISA for maximum effect
What is the London Help to Buy equity loan??
Due to the rising house prices in London, the Government decided to increase the loan amount it gives prospective buyers in London from 20% to 40%. This kicked in back in February 2016 but not so many people are yet aware of it.
So is the London Help to Buy equity loan any different?
Well no, the Help to Buy equity loan scheme is pretty much the same apart from the limit being raised. If you have 5% of your deposit the Government will give you 40% of the property value as an interest-free loan for 5 years.
There is no interest charge on the loan for the first five years but after which you begin to pay just the interest charge of 1.75%. This then rises each year by the retail prices index (RPI) inflation measure + one percentage point. Assuming RPI is 4%, the interest rate would rise by 5% (4% + 1%).
So what’s wrong with the Help to Buy scheme? Is it the best idea for you?
The governments Help To Buy scheme seemed like a welcome help for those first-time buyers struggling to save for that ever elusive deposit, save 5% and the government will lend you up to 40% towards your deposit in London and 20% in the rest of England & Wales by way of an equity loan.
You get 5 years of no interest or having to make payments then in year 5 you start to get charged interest and need to start thinking about repaying the Help To Buy loan which if the property is increasing in value will also increase the amount you have to repay back to the Government(in property value).
The Help To Buy scheme is only available on new Build homes for first-time buyers or new build homes for those already first-time buyers who want to move up the property ladder.
Can you use this help to buy equity loan on an older property where you can add value?
Help To Buy is fine if you don’t want to move into an older property where you could negotiate a better purchase price or an older property that you could add value to by way of installing a new kitchen or bathroom.
Was the help to buy equity loan scheme really designed for you?
No, this scheme was designed to get house builders building, following the 2008/2009 financial crisis when banks stopped lending money to most potential homebuyers and insisting that those that met their very strict criteria had much larger deposits such as 25%.
The high LTV (loan to value) mortgages vanished and this stopped developers from building. Could we blame them? why would developers build properties if banks were not going to give home buyers mortgages to buy them?
When using the Help To Buy scheme your ability to negotiate the purchase price is removed, you have to pay the price which is set by the developer and we all know that a premium is being charged so a new build property will always be more expensive than an older equivalent property and likely to fall in value. The risk of negative equity is therefore ever present here.
The Proportunity Equity Loan?
Proportunity offers an equity loan, simply described as a private version of the “Help To Buy” scheme, except it isn’t restricted to a new build and customers have to pay monthly interest on the loan from the get-go. You don’t have to be a first-time buyer to use the proportunity equity loan.
The Proportunity loan increases customer affordability by up to 15%, while still costing less per month than a traditional mortgage, allowing you to purchase a property up to 10 years earlier. Moreover, Proportunity uses AI to identify future growth areas, and only invests in properties that it expects to beat the market, giving you a bit more comfort about your purchase.
Like Help to Buy, when a customer sells the house or remortgages, they can repay Proportunity equity loan at current market price. Therefore if the price of the house has gone up, the amount the customer pays back will have also increased. If the price has gone down, Proportunity also loses money.
The Proportunity equity loan ranges from 5% to 15% of the house price and the price caps depends on each individual customer and your borrowing power (which is based on your income).
The way the Proportunity equity loan works is:
You come in with at least 5%
Proportunity boost your deposit to 20%
You get a better priced 80% LTV mortgage with a high street lender (better priced than a 95% LTV mortgage if you were to buy a house with only a 5% deposit)
A few more points on the Proportunity Equity Loan:
- The Proportunity loan product is not backed by the UK Government
- Deposit requirements: minimum 5% of the property price
- Price cap: function of LTV( So no price cap)
- Proportunity accept individual and joint mortgage applications (couple, friends etc.)
- Their main focus is on young professionals
- Minimum income requirements: £30k for an individual application, £45k for a joint one
- Only offered in London at the moment
- Property type: existing property stock regardless of tenure (freehold, leasehold, share of freehold)
- The Proportunity loan is a fixed, interest-only, equity loan (Proportunity takes an equity stake in the property)
- The buyer is the owner i.e. does whatever he wants with the property obviously within the boundaries of his freehold/ share of freehold/ leasehold tenure terms
Preserved right to buy
What is the preserved right to Buy??
The preserved right is a legal right given to former tenants of local authority tenants with a secure tenancy to buy their home.If you were a secure council tenant and your home was transferred from your council to another landlord such as a housing association then you might have a preserved right to buy.
This only applies if you were living in the home when it was transferred. Your current landlord should be able to tell you if you have the preserved right to buy.You will not be eligible if you moved to a home owned by a different type of landlord.
You don’t have to be a first-time buyer to use the preserved right to buy.
The Right to Buy only applies if you were a tenant with these local authorities on these dates: West Berkshire District Council 4 December 1989 Christchurch City Council 28 March 1991 Vale of White Horse District Council 9 February 1995 Basingstoke & Deane Borough Council 20 March 1995 .
The preserved right to buy scheme is only available in England and you can get a maximum discount of £78,600 outside London and £104,900 in London.
Properties not included in the Preserved right to buy
- Specialist housing for the elderly
- Housing for the disabled or those with mental issues
- Temporary housing
- Lettings in connection with employment
- Properties scheduled for demotion
To be eligible for the preserved right to buy you need to:
• have spent a minimum total period of 2 years in social housing or armed forces accommodation
• You occupy your house as your only or principal home
• A housing association owns the freehold or has sufficient interest in your current property to grant a lease. There are some other cases where the right to buy may apply covering the following types of cases:
• If you are a joint tenant of someone who may be able to exercise the preserved Right to Buy
• If you were assigned the tenancy by a member of your family who immediately before the assignment would have been eligible; or
• If you became the tenant of your house under divorce legislation in place of a person who would have been eligible; or
• If you are a family member of a previous sole tenant who would have been eligible and inherited the tenancy
• If you are the partner of a deceased tenant who acquired the preserved Right to Buy by succession
• Please note a family member can join in the preserved Right to Buy if they can prove they have lived in your home for at least 12 months before you apply. This 12 month period does not apply to spouses or civil partners.
Who is not eligible for the right to buy under the Voluntary sales policy? ⛔
You may not exercise the right to buy if one or more of the following apply to you:
• A housing association is not your landlord
• You have not spent a minimum total period of 2 years in social housing or armed forces accommodation (or 5 years if you were a public sector tenant for the first-time on or after 18th January 2005)
• You do not occupy the property as your only or main home
• Your home is let to you in connection with your employment
• Your home is designed for people who are physically disabled, for people with a mental health problem, or who have other special needs, and is one of a group of such properties.
• Your home is particularly suitable for elderly residents. Please ask for more details from your landlord of whether this applies to your home.
• Where you have been served a notice that your landlord intends to demolish your home within a specific period
• Where a court order is made which means you have to leave your home by a specific date, or if the terms of a suspended court order are breached
• If you are bankrupt
• If your tenancy has been temporarily demoted to an assured shorthold tenancy in the case of anti-social behaviour.
How do you begin the right to buy process under the voluntary sales policy??
• Your landlord will supply you with an application form which you must complete and return for them to start the process.
• They will let you know in writing if you qualify for the preserved right to buy within 4 weeks of receipt of your application (8 weeks if the qualifying period includes time with another landlord)
• If you qualify for the right to buy a valuer will contact you and arrange to visit your home to carry out an open market valuation. It is worth noting that any improvements you have made to the property will not be included in the valuation.
• Within 8 weeks(if you live in a house) or 12 weeks(if you live in a flat) your landlord will send you a written offer notice(section 125 notice) setting out the sale terms. This offer will usually describe the property, the price it is offered for and any defects found on the property during the valuation. The offer notice will also include any discount you are entitled to which allows you to buy the property under market value.
If you are told that you are not eligible for the preserved right to buy then you can contact the citizen’s advice bureau for more advice or engage the services of a solicitor. Alternatively, you can write to the Residential Property Tribunal Service, 10 Alfred Place, London, WC1E 7LR.
You must also return your decision to buy or not to buy within 3 months if not you will lose your right to an independent district valuer. The housing association will usually send you a reminder before this timeline elapses.
If the housing association delays the sale by not sending you the acceptance form and your offer notice within the times mentioned above or they delay the sale in some other way, you may be allowed a reduction in the purchase price. To receive this you must complete the initial notice of delay(Form RTB6) giving them 28 days to issue a counter-notice and resolve any delay. If the delay remains after this period, then you may serve an operative notice of delay(Form RTB8). This allows any rent that you pay during this period of delay to be taken from the purchase price if you still go ahead and complete the sale.
How are properties valued for the preserved right to buy??
• Your landlord will instruct an independent valuer who will produce a valuation on the property
• Your landlord will then calculate how much discount on the price you are entitled to
• You must have lived in the property for a minimum of 2 years. This could be a local authority or armed forces accommodation (or 5 years if you were a public sector tenant for the first-time on or after 18th January 2005). The initial 2 year period entitles you to a 44% discount if your home is a flat or 32% if your home is a house. For each additional year above the minimum qualifying period, you are entitled to further 2% discount for a flat and a further 1% discount for a house.
• The discount can be no more than 70% of the open market value if it is a flat and 60% if it is a house. However, discount entitlement can never be more than a maximum determined by the Government, which varies according to the region in which your home is located. Your landlord will advise you of the maximum discount available to you in your area on request.
• If you are not happy with the open market valuation you can ask your landlord to instruct the District Valuer to undertake a final valuation, within 3 months from the date of your offer. The District Valuer’s valuation is final and will be the value used to calculate the purchase price even if it is higher than the first valuation.
• If your home is a flat (or a house that benefits from communal facilities) you will also pay service charges. This is for your contribution to day-to-day expenses (lighting, cleaning etc), and any contribution you may have to make to substantial major works and improvement costs (lift repairs, roofing repairs etc) that will add to the value of your home. Your offer notice will contain details of service charges, and for certain service charges, there are limits for the first 5 years of your ownership.
- You must pay any outstanding debts owed to your landlord during the sales process if not they are within their right not to complete the sale with you. You will have to arrange a mortgage if you are not paying in cash. There will be costs involved with this such as mortgages fees, conveyancing fees, property surveys, home insurance and stamp duty.
- You will also have costs associated with running your home all taken care by yourself including your regular mortgage payments, council tax, any ground rent or maintenance fees.
- You will no longer be eligible for any housing benefits as you now own and occupy your own home. You might be able to claim income support but this usually takes 9 months before a payout is received once you have applied. Elderly people will have the value of their homes taken into account when considering if they are eligible for financial help in regards to their residence.
Your right of appeal for preserved right to buy
If your preserved right to buy application is refused you have the right to appeal within 56 days. Details of how to apply will be included in any offer letter sent to you by your landlord
Selling your Preserved Right to Buy home??
You can sell your home at any time you want, If you sell it within 5 years of buying it you will have to repay some of the discounts.
If you sell within the first year you will have to pay all the discount.
If you sell in the 2nd year you will have to pay ⅘ of the discount.
If you sell in the 3rd year you will have to pay ⅗ of the discount.
If you sell in the 4th year you will have to pay ⅘ of the discount.
If you sell in the 5th year you will have to pay ⅕ of the discount.
The discount will be taken as a percentage of the property value when resold. You will not be required to pay any discount after 5 years of owning the property.
You will have to offer the property to your previous landlord if you sell it within 10 years and it is in an area of natural outstanding beauty. If your landlord takes up the offer they will have to pay you the full market value.
You can find further information by contacting the Department for Communities and Local Government or here
Right to acquire
What is the Right to acquire scheme??
The right to acquire scheme is a government scheme which allows housing association tenants to buy their homes at a discount. To apply, simply contact your landlord who will provide you with an application form. Once returned, your landlord will have 4 weeks to get back to you or 8 weeks if they have been your landlord for less than 36 months.
If your landlord agrees to sell the property to you they must send you an offer within 8 weeks or 12 weeks if the property is a leasehold property.
The Right to Acquire offer stage
Once your landlord gives you an offer, the offer should contain how they came to those figures, any issues with the property, how much your discount is, any known issues found with the property and any future costs you may owe to them such as ground rent or maintenance for leasehold properties.
You will have 12 weeks to inform the landlord of your decision. The landlord will usually send two reminders labelled RTA4 and RTA5 reminders.If you don’t get back to your landlord within the time set in the reminders, your application can be binned.
If for any reason you don’t accept your landlord’s valuation, you can ask for an independent valuation to be carried out after which you have 12 weeks to accept the offer.
Who is eligible for the right to acquire scheme?
To be eligible you would:
- Need to have a had a public sector landlord for a minimum for 3 years.
- The property must have been built or bought by the housing association after 31st March 1997 and funded through a social housing grant funded by a housing corporation or council.
- The property must have been transferred from a local council to a housing association after 31st March 1997
- Your Landlord must be registered with the homes and communities agency
- Your home must also be a self contained property and your only home
- You will be able to make the application with someone who shares your tenancy and up to 3 family members who have lived with you for the past 3 months
- You won’t be eligible if a court order has been made against you to leave your property
- You won’t be eligible if you have been made bankrupt
- You won’t be eligible if you are a council tenant
- You won’t be eligible if you have preserved right to buy
- You don’t have to be a first-time buyer to use the right to acquire scheme.
What discount is available with the right to acquire discount?
You will be eligible for a discount of between £9000 to £16000 and this is based on location.
Your landlord will let you know how much discount is available to you. You can view a list of discounts by region here.
If you have used the scheme before there might be a deduction on the amount of discount available to you.
Selling your Right to Acquire home?
If you wish to sell your home within 10 years you must first offer it to your landlord. Your landlord will agree on a price with you. If you disagree on the price you can request an independent valuation at no cost to you.
If you sell your home within 5 years you will have to pay some or all of the discount. You will pay back the discount amount you get in relation to your property sale price.
Help to save
What is the help to save scheme??
The help to save scheme is a government scheme aimed at helping low-income workers or those on universal credit to save more and hopefully put that towards a mortgage deposit.
The scheme will offer over 3.5 million people who save the maximum amount(£3600) access to a bonus of £1200 over four years. The scheme is expected to be released in October 2018.
How does the help to save scheme work?
You are able to save up to £50 per month for 2 years initially after which if you have saved the maximum amount you will qualify for a £600 bonus which is 50% of your current savings. You are then allowed to continue saving which would qualify you for another £600 bonus if you have saved the maximum amount over two years of £1200.
Your account can be managed via a GOV.UK account which will allow you to monitor transactions, check your balance and pay in money to the account.
You can withdraw your money at any time but this may in fact affect the size of your bonus after the 2 year period
Are you eligible for the help to save scheme?
To be eligible you will need to receive working tax credits or universal credit with an individual or household income of £542.88 in your last month before you apply.
If you qualify for the scheme and during your term your situation changes and you no longer qualify. You will still receive the bonus at the end.
How does the help to save scheme compare to other government schemes?
The help to save scheme really will not help many first-time buyers get on the property ladder. And in comparison to other schemes, the bonus received per year isn’t much. E.g the Lifetime ISA pays a bonus of £1000 per year with a maximum deposit of £4000 contributed by you.
The Help to save scheme is however targeted towards low-income individuals or households. Those considering getting on the property ladder should look into government-backed schemes such as the help to buy equity loan or the shared ownership scheme as a way of taking their first steps on the property ladder in addition to the help to save scheme.
Discounted sales scheme
What is the discounted sales scheme??
This is a scheme operated at random by housing associations or councils. The Discounted sales scheme works by allocating some properties including those built by property developers at between 25-50% discounts of their property value.
Who is eligible for the discounted sales scheme?
Discounted sales are set by the local councils and therefore the eligibility criteria are all different for most councils.
You will need to contact your local council to see what properties are available for this scheme and what the council’s eligibility requirements are. In most cases, you will need to have some association with the council who offer the discounted sales scheme. Not all councils offer the discounted sales scheme and the scheme is only available in England.
The typical criteria for the discounted sales scheme:
- You must live or work in the area where the property is located
- Your household income must not be more than £60,000
- You have a deposit for the property
- You must be employed
- You qualify for a mortgage
- You can show that you are not in mortgage or rent arrears or in breach of your current tenancy agreement
- You are aged 18 or over and have a bank, Post Office or building society account
- You do not have to be a first-time buyer but some councils may prioritise first-time buyers.
How do you apply for the discounted sales scheme?
To apply you must first find a property with a discounted sale scheme available for it and contact the local council to confirm your eligibility and get an application form.
You must now apply using the discount sales application form. You should receive a confirmation on the process and if you have been accepted.
You should then seek advice on how to acquire the property and begin the home buying process.
Selling a discounted sales property
If you choose to sell the property, the original discount is passed on to the next person. For example, if you bought the property with a 25% discount you can only sell the property at 75% of the market value. You must inform the Housing Association you bought the property from before you sell.
Starter homes scheme
What is the starter homes scheme??
The starter home scheme is designed for first-time buyers and home movers under the age of 40 to purchase new build homes.
How does the starter home scheme work?
The starter homes are sold to borrowers for 80% of their current value with a maximum price of £450,000 in all London boroughs and £250,000 outside London.
How do I apply for the starter home scheme??
Properties are not always available for this scheme so you will need to register your interest here to make sure you get updates on when properties become available.
Once you purchase the property via the starter home scheme you will not be able to sell or let it in the open market for at least 5 years. This is of course put in place to discourage investors from exploiting this discount. In any case, an application for a starter home mortgage scheme does not guarantee your acceptance.
Social home buy scheme
What is the social home buy scheme?✔
To be eligible for this scheme you would need to have lived in a social housing property for 5 years minimum after which you would be able to own a share of the property and pay subsidized rent on the other share.
Who qualifies for the social Homebuy scheme?❄
Those who have lived in social housing for at least five years and your landlord must be a member of the Social HomeBuy scheme.
What is the Discount available with the social home buy scheme?☀
You’ll get a discount of between £9,000 and £16,000 on the value of your home, depending on where your home is and the size of the share you’re buying. You buy a minimum 25% share of your property. You then pay a subsidized rent on the rest. When you can afford to, you can increase the share of equity that you own. The property price will always be assessed at the time you want to purchase more shares of the property.
For example, if the full discount is £16,000, you can expect to receive the following discounts if you buy a share:
· 25% – £4,000
· 50% – £8,000
· 75% – £12,000
Social HomeBuy scheme Property eligibility?
The property must be owned by the council or housing association.
Conditions of the social HomeBuy scheme?
There are some conditions that you must stick to after buying a property through the social HomeBuy scheme.
You are not allowed to sublet the property within the first five years of buying.
If you sell your home within the initial five years of buying, then the discount you receive will be repayable. The discount is repayable if the home or shares assigned to you are sold within five years of their purchase.
The amount due to be repaid is calculated as a percentage of the resale value equivalent to the percentage of the discount when compared to the purchase price and reduced by a fifth each year as follows:
· Sale within one year, repay an amount equal to the percentage that the discount bore to the purchase price.
· Sale within two years, repay 80% of the amount calculated as above.
· Sale within year three, repay 60% of the amount calculated as above.
· Sale within year four, repay 40% as calculated above.
· Sale within year five, repay 20% of the amount calculated above.
· No repayment required after year five.
How to apply for the social HomeBuy scheme?✔
Some housing associations and councils have not joined the schemes. Aside from this, you should be able to apply for the scheme via your council or housing association. Make sure to confirm if your council or housing association is part of the scheme first.
Self-build portal scheme
What is the Self Build Portal scheme??
So you can’t afford a mortgage deposit, Cant get a shared ownership scheme and for some reason can’t find affordable housing at your local council or housing associations.
This scheme is for people who want to build their own homes or have it built for them.
To start this process check out the self Build portal website here.
What is the Homeownership for people with long term disabilities scheme???
The Homeownership for people with long term disabilities scheme is a homeownership scheme for people with long term disabilities. The scheme is a type of shared ownership scheme which allows you to own between 25% – 75% of the home and pay rent on the remaining equity.
Who is eligible for the homeownership for people with long-term disabilities?
- People who have less than £80,000 of combined income outside London and £90,000 outside London are eligible.
- You have a long term disability
- You are a first-time buyer
- You used to own a home but can no longer afford to buy a home
- You don’t currently own a home
- You have special needs which ordinary shared ownership homes don’t meet your needs
You can get a priority list for the Homeownership for people with long term disabilities scheme if you are ex-military or the council deems your situation as such.
For more information see here.
Help to buy ISA
What is the Help to Buy ISA?✔
The help to buy ISA is a Government-backed first-time buyer ISA.The government will give you a 25% bonus for every £200 you save and will pay you up to a maximum of £3000.
Who is eligible for the Help to Buy ISA?
To be eligible for the Help to Buy ISA you will need to be:
- Be of 16 years of age or over
- Be a first-time buyer
- Be a UK resident
- Not own any property on Planet earth
- Have a valid National Insurance number (NINO)
- Not have any other active ISA accounts in the same tax year
- It is worth noting that the Help to Buy ISA is available for those employed(self-employed) or unemployed.
- In some cases, if you have a current IS which was opened in the current tax year you may be able to switch to a Help to buy ISA.
Switching to a Help to Buy ISA?
You can switch to a help to buy ISA by transferring your current Cash ISA to a help to buy ISA. There’s currently a limit of £1200 which you can transfer to this first-time buyer ISA from your Cash ISA.
Everything over the £1200 can be moved to any other ISA product such as an innovative finance ISA or shares and stocks ISA.
You must not exceed your total personal limit for ISA, so be sure to ensure you stay within your total limit by adding up all your ISA products.
In some cases, some specialist ISA managers offer their ISA portfolio in a CASH ISA bundle which allows you to hold multiple ISA products but total personal ISA limits will still apply.
Frequently asked questions about the Help to Buy ISA
Can I open a Help to Buy ISA?
Yes. As long as you are over 16 and a UK resident. To open your Help to Buy ISA just walk into any bank or go online and get started. You can find a list of Institutions that currently have the scheme available here. You can also switch your Cash ISA to a Help to Buy ISA even if you have already opened a Cash ISA in the current tax year.
Can I open a joint Help to Buy ISA with my friend of family?
No, you cannot. If you both plan to buy the same property then you can both benefit from the scheme. This includes the Government bonus and savings. You can’t open an account on behalf of someone else either.
Can I open more than one help to Buy ISA?
No, you cannot. You are only eligible for one Help to Buy ISA account per year. This does not affect your right to switch your Help to buy ISA between different providers.
When does the Help to Buy ISA come to an end?
You will not be able to open a Help to Buy ISA account after 30/11/2019. You will however still be able to pay into your Help to Buy ISA and claim the benefits of the Help to Buy ISA until 30/11/2029. If you opened a Help to Buy ISA account before 30/11/2019.The Bonus from the help to Buy ISA will cease on 1/12/2030 so be sure to claim it before then. The Help to Buy ISA allows you to save a maximum of £200 every month with an extra £1000 for the first month.
How do I qualify for the Help to Buy ISA Government bonus?
To qualify for the government bonus you must be considered a “first-time homebuyer“ as this is a first-time buyer ISA. The property you plan to purchase must also cost less than £250,000 outside London and £450,000 in London.
Can I combine first-time home buyer Government schemes?
Yes, you can indeed as long as you qualify for the other schemes. You can get a Help to Buy ISA and also still get a Help to buy Equity Loan but you cannot claim government bonuses from two first-time buyer ISAs such as the lifetime ISA and the help to buy ISA. You must choose one.
Does transferring the Help to Buy ISA account to a new provider qualify me for another initial bonus deposit allowance of £1000?
How do I claim my Help to Buy ISA Government bonus?
To claim your bonus you need to inform your ISA manager that you intend to withdraw all your money and close your account. Afterwhich a closing statement will be issued which you can then use to claim your bonus. You must claim your bonus within 12 months of closing your account.
How do I apply for my Help to Buy ISA Bonus for my new house?
Your solicitor (who deals with the exchange of contracts during the mortgage process on your behalf) will apply for the Help to buy bonus on your behalf. This is the case with all first-time buyer ISAs. You must ensure you acquire a closing statement from your ISA provider or manager as your solicitor will need this. You need to have saved at least £1600 to qualify for the government’s minimum bonus of £400.
Lease Option agreements
What is a lease option agreement?
A lease option agreement is where you lease a property with the option to buy it out in the future, this is usually between 3 and 6 years. You will pay a fee to have this option, usually, around 2% of the property price whilst you will also continue to make your monthly lease payments to the leaseholder.
Lease option agreements are great because they provide some guarantee to the prospective buyer that the price they will pay will be frozen regardless of any rise in house prices. This means they now have a fixed price to save towards.
Lease option agreements are a good option to consider when thinking of getting on the property ladder. You should ensure you take legal advice and consider the costs involved.
If you’re a struggling first-time buyer trying to put together a mortgage deposit with no luck so far. You will be glad to know that the Government is here to help you via its Mortgage schemes.
Government schemes may well get you on the property ladder faster than you thought but first what should you consider which ones are best for you and the pros and cons of each.
Which Mortgage scheme is right for you??
Well, that depends on the answers you give to the below questions.
Before we go any further you must first consider the parameters that will define any success. Firstly you should have a deposit of 5% at least. This will open so many doors and allow you to compare options. However, if you don’t have this then there are still other routes to the property ladder. You should also consider the mortgage types you want to go with. Joint or single?
How much is your mortgage deposit?
If you have a 5% deposit then a help to buy mortgage is right up your alley and should be the first mortgage scheme considered.
If you are a London resident then the London Help to Buy scheme should work too
And if you’re a first-time buyer with savings then Help to Buy ISAs will help you get more out of your savings as they are tax-free and offer up to £3000 in matched funding from the Government.
Are you happy about buying a new build property?
If yes, then both of the Help to Buy schemes above work even better. Another option is the Starter Homes scheme which is only available for those under 40 years old.
New builds are known to be overpriced by at least 10%. This means negative equity becomes a real risk and remortgaging goes straight out the window as your mortgage debt becomes bigger than your property value.
Are you happy just owning a share of a property and paying subsidized rent?
If you are happy owning a minimum 25% of the property then the social HomeBuy scheme will work perfectly fine. It allows you to own a minimum 75% which you get a £9000- £16,000 discount on and pay a subsidized rent on the remaining share of the property which is owned by your council or housing association. The shared ownership scheme will also work fine.
Using a mortgage broker
You may want to consider using an independent mortgage broker to get a mortgage.
Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases. This could be over 11,000 mortgage products. This may have some advantages than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle.
This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your remortgage is indeed a possibility before you make a full mortgage application.
This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your mortgage with the help of a conveyancer. Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it, they will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.
In this brief guide, we discussed everything around being a first-time buyer such as first-time buyer mortgages, first-time buyer ISA, the first-time buyer stamp duty and the first-time buyer mortgages. and the first-time buyer schemes that are available to you as a first-time buyer. If you have any questions or comments please let us know.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.