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Guide for first time buyers on a budget

Guide for first time buyers on a budget

by Alex Williamson & Nevena Mulyachka

Last updated: 08/04/2016

Rising house prices and a shortage of affordable housing is causing Generation Rent to grow steadily with young adults being priced out of the property market.

Getting that first foot on the property ladder can be a daunting task, with the prospect of massive deposits putting many first-time buyers off from taking the plunge. However, there are many schemes and opportunities available for first-time buyers out there. Here is a selection:

‘Help to Buy’  

This scheme where the government helps you to get on the property ladder has been very prominent in the news this year. Within ‘Help to Buy,’ there are three different initiatives available: equity loans, mortgage guarantees and Help to Buy ISAs.

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Equity Loans

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Under an equity loan, you are expected to pay a minimum 5% of the property price as a deposit. Then the Government will provide a loan of up to 20%, and you must secure a mortgage of up to 75% to cover the rest. When the property is sold you must repay the original loan amount plus 20% of any increase in the property value.

You are not charged interest for the Government loan until the sixth year when you are charged a fee of 1.75% of the value, after which the fee increases yearly with the increase being calculated through the Retail Price Index.

The loan must be repaid within 25 years, or through the sale of the house whichever comes sooner. You can make repayments at any time for a minimum of 10% of the market value of your home.

This scheme is only available for buying newly built property.

!50 imageMortgage Guarantee


The Government offers mortgage lenders a guarantee on mortgages where a borrower has a deposit of 5% to 20%. This allows first-time buyers to access low deposit mortgages on properties with a value up to £600,000.

Mortgage guaranteeing isn’t exclusive to first-time buyers, making it a viable option for existing homeowners with not much in the way of savings as well.
Everything you might need to know about the Help to Buy scheme can be found here:

!50 image Help to Buy ISAs


This scheme launched last year and essentially the government is topping up your savings. Here's how it works - you put away up to £200 a month plus an extra £1,000 that you can save when you first open the account and the government tops this up with 25% more, so for every £200 you get £50 more.

The minimum amount you need to save to be entitled to a bonus is £1600 (which equals a £400 bonus) and the maximum amount you can save to be entitled to a bonus is £12,000 (which comes to a £3000 government payout). If you’re building up a deposit slowly, this is a scheme that is worth taking advantage of, even if it is only applicable to homes with value up to £250,000 (£450,000 in London).

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NEW: Lifetime ISAs


The new Lifetime ISAs will be launching in April 2017 as the government's attempt to encourage young people to save both for their first home and for retirement. The scheme will be available to anyone aged between 18 and 40 years old.

Similarly to the Help to Buy ISAs the government will be giving you a bonus on top of your savings - in this case you'll be able to save up to £4,000 per year and you get a 25% bonus (up to £1,000) per year. Plus you'll be earning interest on the bonus too.

You'll be allowed to withdraw the money at any point to go towards the deposit for your first home worth up to £450,000 across the country.

After your turn 60 you'll be able to withdraw the money collected to go towards your retirement.

‘Right to Buy’

This is great for Council Tenants. If you have been a council tenant or a tenant of any other publicly owned housing association for at least 3 years you are entitled to buy your home at a discount – 35% for houses and 50% for flats.

After 5 years, the discount you are entitled to rises by 1% a year for a house, and 2% a year for a flat, up to 70%. The maximum discount you can receive is £77,900 (£103,900 in London boroughs).

You can normally obtain mortgages, subject to meeting the lender’s criteria, to help you with the rest of the payment.

You can find more useful information here:

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Shared Ownership Schemes

These schemes allow you to buy a set percentage of a property and rent the rest from a housing developer or your local council. Normally you are expected to buy between 25-75% of the property, which requires a much smaller deposit and subsequent mortgage repayments, though rent costs to the shared ownership provider must be paid as well.

Consequently, to reduce your rent, you can buy a further share of the home, in 10% increments, through ‘staircasing’. Restrictions on what properties are available can make it hard to take advantage of these schemes, so if you find one you might want to snap it up before it’s too late!

Explore cheaper areas

Map showing the current level of affordability of property in England, calculated by measuring average prices against average earnings of residentsCheaper areas come in all shapes and sizes. Some are a bit run-down, others are posh but with poor transport links, others might have bad schools so families give them a wide berth and the price plummets. There is of course a massive gulf in house prices between North and South in England and Wales. 

A recent survey by Halifax has revealed that all of the top 10 most expensive areas to live in the UK are in London, while Wales and Scotland dominate the 10 cheapest areas. A location with great transport links, schools, and leisure facilities will command a much higher premium. If you’re a first-time buyer looking for a property on a budget, you may have to accept that less convenient or prestigious areas may be the only ones that are realistically available to you.

However, you might not even need to move very far for a cheap price as property prices can vary dramatically within just a few miles. Zoopla estimates the average house price in Stretford, Manchester at £182,912, while Chorlton cum Hardy (probably because of the name) has an average price of £324,000 despite being less than a mile away.

Meanwhile down in South-east London, Lewisham has an average price of £403,075 while the Blackheath area down the road currently has an average price of £672,012. These examples prove that casting your net a little further could be the difference between having no home or a new home.

Recently we also looked at some places in the UK with rude names which offer much cheaper housing than the streets around them, e.g. a house on Cock A-Dobby Street in Berkshire is £158,000 cheaper than one on a street nearby.

Guarantor Mortgages Security of Mum and Dad - Some first time buyer’s mortgages allow a guarantor (usually a parent) to provide a guarantee that your mortgage payments will be paid on time.

This will involve making the payments themselves if you are unable to do so, making it a big responsibility for guarantors to undertake.

This method allows the lender more security than a normal mortgage would, meaning they would be happier to lend more to you than they would usually, or you may  get away with putting forward a smaller deposit.

Move in with Housemates or a Partner

If buying a home alone is too much of a financial burden, you can increase your financial clout by pooling funds with someone else.

Although this requires a lesser deposit from each person, it requires a great deal of trust with the person you’re buying with. You will need to get a joint mortgage with the same lender and both of you will be liable for 100%.

Splitting of bills, repair costs and communal facilities are also costs that should be taken into consideration before making going down this route, as well as whether the person you are going to co-habit with is likely going to drive you mad!

Low Deposit Mortgages

The days of 100% mortgages are long gone, but some lenders are starting to reintroduce 95% loan-to-value mortgages again, allowing you to get a mortgage with as little as a 5% deposit (usually done through the Help to Buy scheme).

While this option is extremely attractive to prospective homeowners unable to save for a deposit, the interest rates tend to be significantly higher than they are for 90% mortgages, meaning it may be a better option to save up for a bigger deposit in the long run.

For fee-free expert advice on your mortgage, call the team at 0800 073 2327 or request callback here.


moneyhelpline Mortgage Service is provided by London & Country Mortgages (L&C), Beazer House, Lower Bristol Road, Bath, BA2 3BA. London & Country are authorised and regulated by the Financial Conduct Authority (registered number: 143002). The FCA does not regulate most Buy to Let mortgages.

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