Aspiring home owners can now register their interest to purchase a new ‘Starter Home’ via a new government-backed scheme.
First time buyers aged under 40 will be able to purchase newbuild homes included in the ‘Starter Home’ scheme, which is expected to launch in the spring, at a 20% discount to the market price.
When it announced the scheme last year the government committed to making 100,000 Starter Homes available. The new homes will be built on brownfield land across the country.
Find out more: visit our full guide to the Starter Homes Initiative
Options for first time buyers
But the Starter Home scheme is not the only option for first-time buyers looking for a helping hand onto the property ladder. There are other government-backed schemes as well as products on offer from mortgage lenders.
Starter Homes scheme
What is it? – A government-backed scheme where newbuild property developers sell homes to first time buyers at a 20% discount.
How does it work? – Property developers are being given some regulatory exemptions, which will make homes in the scheme cheaper to build and means they can pass the discount on to buyers. Buyers will need to save up a big enough deposit to get a mortgage. It is unclear at the moment whether lenders will offer special ‘Starter Home’ mortgages or if buyers will get them from their ordinary product range.
Who can use it? – First time buyers who are aged under 40.
Pros – You can buy a house you may have struggled to afford without the discount.
Cons – You won’t be able to sell the home at full market price for five years after you buy it. The scheme won’t be available in all areas – it will depend on whether suitable land is available and if your local authority signs up.
More on the Starter Homes scheme
Help to Buy Mortgage Guarantees
What is it? – A government-backed scheme with the aim of making mortgages for people with small deposits more affordable. Help to buy mortgages are available for loans of between 80% and 95% of a property’s value.
How does it work? – You as the borrower put down a deposit of at least 5% and the government then guarantees any mortgage lending above 80% of the property’s value. For example, if you took out an 85% mortgage the government would guarantee to repay your lender up to 10% of its value if you defaulted.
Who can use it? – Any buyer looking to buy a main residential property worth £600,000 or less.
Pros – You only need a small deposit and it can be used to buy any property, not just newbuild property.
Cons – The guarantee is only for the lender; you as the mortgage borrower are responsible for the full mortgage amount – it is no different to any other mortgage. Your home could be repossessed if you get into arrears. Non-Help to Buy mortgages may be available that are just as competitive.
More on Help to Buy Mortgage Guarantees
Help to Buy Equity Loans
What is it? – A government-backed scheme which will lend people buying a newbuild property up to 20% of the value of the property as an equity loan.
How does it work? – You will need to put down a deposit of at least 5%, get an equity loan of up to 20%, and get a mortgage to cover up to 75% of the property’s value. So if you wanted to buy a house for £200,000 with a 5% deposit you would need: a minimum £10,000 deposit; a loan from a mortgage provider of up to £150,000, with an equity loan of up to £40,000 from the government.
You have to repay the equity loan in full after 25 years, when your mortgage term finishes or when you sell your home – whichever happens first.
Who can use it? – Anyone buying a newbuild property worth £600,000 or less, as a main residential property.
Pros – You will only need a small deposit, and as you’re only borrowing 75%, instead of up to 95%, you will be able to access better mortgage rates.
Cons – Although Help to Buy equity loans are interest-free for the first five years, after that you will have to pay a monthly admin fee, which starts at 1.75% of the loan. It will then rise every year by any increase in the Retail Prices Index plus 1%. Payment of these fees will not count towards payment of the loan.
More on Help to Buy Equity Loans
Guarantor and other ‘parent’ mortgages
What is it? – A range of different mortgage lenders such as Barclays, Family Building Society and Aldermore offer products where parents and other family members can help their relatives to buy to a house.
How does it work? – Products work differently, with some the family member agrees to repay the loan if the buyer defaults and with others the family members’ savings are kept in a special savings account by the lender as security for the loan.
Who can use it? – Each lender will have their own terms and conditions, but buyers will still need to be able to prove they can comfortably afford the mortgage. Family members acting as guarantors will need to have secure finances too.
Pros – Helps buyers who might have struggled to get a mortgage and may mean a cheaper mortgage rate.
Cons – Family members will have to use their own savings or property as security for the loans – that means in the worst case scenario they could lose money or even their home could be repossessed if you get into arrears.
More on Parent mortgages
First time buyers should consider all options
The option that is best for you will depend on your individual circumstances, talking through with an independent mortgage adviser could be a helpful starting point.
The Which? Group offers an independent mortgage advice service, Which? Mortgage Advisers, that looks at a wide range of mortgages from every available lender. You can also find an independent mortgage adviser using Unbiased.co.uk.
- Buying a house: First time buyers – Which? guide to buying your first home
- What is a mortgage? – Everything you need to know about mortgages
- How to get the best mortgage deal – Get the right mortgage for you
Which? Ltd is an Introducer Appointed Representative of Which? Financial Services Ltd, which is authorised and regulated by the Financial Conduct Authority. Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.