Following the end of the government’s help-to-buy scheme last year, many first-time buyers will be searching for alternative ways to help them get on the property ladder. We explore some money-saving tips and government-backed schemes that can help you save for your first home.
Lifetime ISA
Opening a Lifetime ISA (LISA) is a great way to help you save for your first property. The account allows you to save up to £4,000 every tax year and the government will add an extra 25%, which means you could get up to £1,000 for free annually. Plus, you’ll earn tax-free interest on everything you save.
It’s important to note that a Lifetime ISA is designed to help you save for your first home, or retirement. This means, if you choose to set one up, you should be sure you’re going to use the money for one of these two purposes. Otherwise, if you want to withdraw funds before you’re 60, and it isn’t to buy your first home, you’ll have to pay a penalty of 25% of the withdrawal amount each time.
There are a few conditions:
- You need to be between 18 and 39 years old when you open your LISA.
- You must be a first-time buyer. If you’ve owned a property before you can’t use a LISA towards a home purchase.
- The first home you’re buying must be a residential property in the UK under £450,000 that you intend to live in.
- The account needs to have been open for a year before you can use it to purchase a property.
- The 25% government bonus is only paid on your monthly contributions, not the total amount in the account.
- The bonus is paid on your contributions until you’re 50.
- You’ll pay a penalty if you take out money and don’t use it for your first home or retirement.
Help-to-buy mortgage guarantee scheme
Even when saving efficiently and making use of all the schemes available, with property prices so high, first-time buyers often find it hard to save a large enough deposit to purchase a home. Launched in 2021, the mortgage guarantee scheme gives buyers who can afford the mortgage repayments, the chance to buy a bigger home with only a 5% deposit.
These 95% Loan-To-Value (LTV) mortgages are available from participating lenders across the UK on properties priced at £600,000 or less, whether you’re a first-time buyer or have previously owned a property. However, if you want to take advantage of this scheme you’ll need to act quickly as it is due to end on 31st December 2023.
Guarantor mortgages
Another option for those unable to save a large enough deposit, or who want to buy a bigger property which costs more than a lender will allow them to borrow, is to obtain a guarantor mortgage. This is when another person (usually a close friend or family member) agrees to be legally responsible for making your mortgage repayments if you’re unable to. These types of mortgages are a good way for parents, who are often in a more stable financial situation, to help their children get on the property ladder.
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