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How the Government’s 5% deposit scheme helps first-time buyers

Getting on the property market for the first time can be difficult in any circumstances, but this has been made even harder following the coronavirus pandemic.

With the property market being essential in helping rebuild the economy, Prime Minister Boris Johnson announced last month that he would “fix our broken housing market” by introducing a new 5% deposit scheme. Aimed at the two million first-time buyers across the UK, the scheme aids the Prime Minister’s vision of “turning generation rent into generation buy”.

“We need now to take forward one of the key proposals of our manifesto of 2019: giving young, first-time buyers the chance to take out a long-term, fixed-rate mortgage of up to 95 per cent of the value of the home – vastly reducing the size of the deposit. We believe that this policy could create two million more owner-occupiers – the biggest expansion of home ownership since the 1980s. We will help turn generation rent into generation buy.”- Boris Johnson

How will the scheme work?

First time buyers have been hit particularly hard by the pandemic. Those struggling to raise savings could previously apply for a 5% deposit, however, recently these have been especially hard to find. The news of the government’s 5% deposit scheme is extremely welcome to would-be purchasers.

At this stage, the government hasn’t gone into too much detail about how and when the scheme would be introduced, however it is predicted to come into force when the new Help-to-Buy scheme ends in 2023. Boris Johnson has said, however, that through the scheme, the government will take on some of the loan risk in the form of a state guarantee.

What can first time buyers do right now?

If you are already planning on getting into the property ladder and can’t wait until the government’s 5% deposit scheme starts, there are some options that could suit you right now:

Help to Buy Equity Loan

With a Help to Buy Equity Loan, the government lends you up to 20% (40% if you’re in London) of the cost of your newly built home. You pay a 5% deposit and arrange a mortgage of 25% to make up the rest of the costs.

With this type of loan, you won’t be charged interest on the 20% loan for the first 5 years of owning your property. You must, however, pay the loan back after 25 years or when you sell your home, whichever comes first.

To be eligible, the home you buy must be a new build with a purchase price of up to £600,000 in England or £300, 000 in Wales. It must be the only home you own and it can’t be sub-let or rented after you buy it.

Help to Buy ISA

Another way in which first-time buyers can save towards a house is a Help to Buy ISA, which is a tax-free savings account where the government will add an extra £50 for every £200 that you save. This government benefit is limited to a maximum of £3000, but it can help boost your savings towards your deposit for your first home.  

Unfortunately, these types of accounts have now closed for new applicants, but those who already have an account have until 2029 to use it.

Right to Buy

This scheme allows council and housing association tenants to buy their property at a discount. The discount you receive is dependent on how long you’ve been living in the property and whether the property is a house or flat.

If you’ve been living in a council house for three years, you’re entitled to a 35% discount. After five years, this discount increases by 1% each year (up to 70%).

If, however, you’re in a council flat, you’ll be entitled to a 50% discount, which increases by 3% per year after five years (up to 70%).

Shared Ownership

Shared ownership involves part owning and part renting. You can apply to buy a portion of the property, and pay rent for the remaining portion. As time goes on, you are able to buy additional portions of the property, with the house being re-valued each time you do.

In order to do this, you need a deposit worth 5% of the portion you’re buying. 

Rent to Buy

Rent to Buy allows you to rent a property at 80% of the market rate and receive a 10% gifted deposit from the housing association when you’re ready to buy it. Your lease can last up to five years and there’s no obligation to buy.

Taylor Cole Estate Agents

As one of Tamworth’s leading estate and letting agents, we are committed to making matters easier for you.

We understand that buying a property can be stressful, especially if you are a first-time buyer. At Taylor Cole, we believe that it should be an exciting time full of possibility, which is why we offer personalised advice and support to help you secure the property of your dreams.

To find out more about how we can support you, call us on 01827 311412.