If you’re ready to buy a home, getting your foot on the ladder might feel like a difficult puzzle to solve. From choosing the right location to finding a conveyancer, there are so many factors and steps involved in the process.
Loans provide an effective way to cover the costs and ease pressure from your personal finances. To help you navigate the selection, we’ve explained more about the different types of loan tailored for first-time buyers in the UK.
Loans for first-time buyers in the UK: Everything you should know
- First-time buyer mortgages
Like a regular mortgage but tailored specifically to the needs and circumstances of first-time buyers, these mortgages typically require a lower deposit than standard options. Make sure you compare mortgage deals from different lenders to find the most appropriate option.
Deposits can range from 5% to 10% of the total property value, but lenders might offer incentives to attract first-time buyers. These include discounted interest rates, cashback, and gift vouchers for home retailers. You’ll be more likely to be accepted onto a promotional scheme if you take the time to build a strong credit history first.
- Help to Buy Scheme
Although this scheme closed to new customers in October 2022, you might’ve been encouraged to open an account while it was still in operation. If your application was approved and you have an account, the government will top up your savings with the Help to Buy Scheme.
With a Help to Buy Equity Loan, you’ll only need a 5% cash deposit and a 75% mortgage to cover the cost of the property, since the government lends you 20% of the total cost. Qualifying properties must be new builds: Help to Buy cannot be used for any property that has been lived in before.
- Lifetime ISAs
If you missed the deadline for a Help to Buy ISA, you could still save money on your first home with a Lifetime ISA. This is a savings account designed specifically to help people save either for their first home or for retirement.
First-time buyers with a Lifetime ISA can save up to £4,000 every year, and the government then adds a 25% bonus on contributions – that’s a maximum £1,000 a year extra. These extra funds can be used on a home in the UK valued up to £450,000.
- Shared Ownership
Buying a home through shared ownership means you could save up to 50% on its market value.
Choosing a shared ownership scheme doesn’t mean that you’ll be sharing the house with anyone else. It simply means that you buy a share of the property and pay rent to a landlord on the rest of it. The rules vary depending on where you live, so it’s worth checking with your local authority and directing any questions to your home builder or estate agent.
- Family Assisted Ownership
Finally, a family assisted mortgage is a way of formalising financial support from close family members. It usually manifests in a large cash deposit, ranging from anywhere between 10% and 30%. This enables savings-backed mortgages from a trusted guarantor, which can simplify and speed up the buying process for many first-time buyers.
While family assisted ownership might be a privilege, there’s no shame in accepting help from loved ones.
