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How the government can help you buy a home: First Buy

If you are a first time buyer, looking at new builds and are struggling with saving for the average 25% deposit needed in todays housing market then First Buy might be for you.

The Basics

  • First Buy is a government-backed scheme whereby the government provides you with 20% equity loan. This means you need to find only a 5% deposit and a 75% loan to value (LTV) mortgage.
  • First Buy can help you if you want to own your own home, are looking at new builds and are struggling with saving for the average 25% deposit needed in todays housing market.
  • Just because this is a government scheme doesn’t mean you get any more protection. It is your responsibility to keep up repayments on the mortgage and other loans.

Am I eligible?

Yes if :

  • you are a first time buyer, or would be buyer who can’t afford a suitable home in their local area
  • your household earns £60,000 a year (£64,300 in London) or less
  • or, if you are looking for a three bed property in London, are a family of 2 adults and at least one child, and have a household income of less than £74,000. A household can be one person, or you and a partner or you and a friend
  • have a deposit of 5% or more and a good credit history

How does it work?

  • So, once you have found a property (see below “How do I do it?”) you need to save your 5% deposit, take up the equity loan from the government and secure a mortgage to cover the other 75% of the cost of the property.
  • the equity loan from the government is interest free for the first 5 years, after which you will be charged a fee calculated at 1.75% of the equity loan plus 1%. The fee rate slowly increases year on year in line with the Retail Price Index. These repayments will sit alongside your mortgage repayments.
  • If you can repay your equity loan within the first five years (highly recommended) then you do not have to pay any fees.
  • If you can make part repayments through what they call “staircasing” it will reduce your fees and will mean you are entitled to a greater share of the total sale proceeds when you sell. Paying it all off in a lump sum would also avoid fees.
  • When you come to sell your house (or after 25 years) you will have to repay the equity loan amount back in full.
  • remember this is an equity loan and the government will own 20% of your property. The consequence of this is that if house prices rise and the value of your property increases you will still owe 20% of the value of the property – which will now be a larger amount than it was originally. On the other hand if prices fall you will also still owe 20% – which will be less than it was originally.
  • Most high street lenders will lend under the FirstBuy scheme, but not all lenders work with all developers, so once you find a property you will have to confirm which lenders you can use which might mean you don’t get the best mortgage product available on the market
  • you will also have to pay all the other costs incurred when buying a home (see our Hidden Costs guide) like stamp duty and legal fees. This potentially adds up to 7% to the cost of purchasing the property

Should I do it?

  • It is more likely to make sense if you expect to stay in the property for a number of years. This is because new-build properties include an extra premium on the sale price that, like a new car, depreciates as soon as you buy it. If house prices fall, you may fall into negative equity and you may not have enough money from selling the property to repay the mortgage.
  • You will benefit most from this scheme if you can pay off the equity loan within the 5 years before the fees kick in
  • There may be options to make FirstBuy even more affordable as some schemes allow you to rent out the second room to help you make repayments.
  • Be honest about the new builds you are looking at. You are going to be here for the next 5 years at least if you want FirstBuy to work financially – is there enough storage, are you expecting to start a family in that time, does furniture fit in the rooms?
  • You will not be offered an interest only mortgage, so you will have to ensure you are able to repay a capital repayments mortgages alongside the fees and equity loan repayments (see our guide Mortgages made simple for more information)
  • Just because this is a government scheme doesn’t mean you get any more protection. It is your responsibility to keep up repayments on the mortgage loan.

How do I do it?

  • First, you must register with you local HomeBuy Agent, who has been tasked by the Government to act as an intermediary between you and the property builders and owners. You can see a list of HomeBuy Agents here – http://www.homebuy.co.uk/
  • You will need to secure a mortgage using the procedures that the HomeBuy Agent has in place rather than approach lenders directly, as which bank you can use depends on which property developer you buy from. Nevertheless we advise you to seek independent mortgage advice before taking out any mortgage so you know you have explored all the options.
  • Likewise, do your research on the local area and new build house prices. Are the properties selling or are there lots of For Sale signs about?
  • Search on Google for other people’s experiences on the scheme to see what the feeling is out there. And don’t forget we’re on your side, so please let us know how you get on

Other information

  • Note: Originally, the FirstBuy scheme was due to come to an end in March 2014 outside London and March 2016 in London. However, it now looks as if will be subsumed into the Help to Buy Equity Loan scheme (which is the same as First Buy but has broader eligibility criteria) – so may run under it’s new guise until April 2016 nationwide

 


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6 Comments

  1. I am a foreigner and own a house in my home country. However, I could not sell it even if I wanted to as my parents live in it (I do not receive rent payments or any other earnings from it). Could I still be considered a first time buyer in the UK? Thanks in advance.

    Comment by Croxley — April 4, 2016 @ 11:08 am

  2. Need a lender who would help me.

    Comment by Aronica Shy — March 21, 2016 @ 1:46 pm

  3. I am trying to buy my first home, that I have lived in for the past 6 years I never new she was selling it until a month ago I would like to buy it but I need help, there are a lot of lenders out there but there fees are too. large, I have no problem paying but I need help.. Thank you.

    Comment by Aronica Shy — March 21, 2016 @ 1:45 pm

  4. Hi Akthar,

    Please take a look at our step-by-step guide to buying a home and considering joining us as a member, as we’d be happy to help you with any questions you may have!

    Thanks,

    Annie
    HomeOwners Alliance Team

    Comment by Annie — November 18, 2015 @ 12:54 pm

  5. i would like to buy a property with my partner. how it does work?
    we both will be first time buyers.

    Comment by akthar zaffar — November 16, 2015 @ 9:55 pm

  6. Dear sirs,

    I would like to know if this government help is also allowed to non-uk citizens.
    I live in France.

    Thank you very much for your reply.
    Mirko Stanic

    Comment by Mirko Stanic — June 12, 2014 @ 6:26 pm

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