How easy is it for first time buyers?

There is no doubt that the current market is becoming increasingly attractive for first time buyers.

Whilst the stamp duty changes are less lucrative for investors, first time buyers can relish in the positive change. As a result, first time buyers will not need to pay stamp duty on homes worth up to £300,000 and no tax will be payable on the first £300,000 for those buying homes worth up to £500,000.

New build properties are mainly targeted to first time buyers due to the incentives available to prospective purchasers, for example using the Help to Buy equity loan scheme and the starter homes initiative.  

There are many advantages of purchasing a new build, for example they come with a 10 year NHBC warranty covering structural defects. Developers are also looking to attract purchasers by offering to –pay stamp duty, legal fees or include top quality appliances with the sale. Nonetheless, it is worth considering that buyers will be purchasing a property off plan, which can mean delays in construction and the risk of mortgage offers expiring.

This article takes a look at the few options available for those who want to get onto the property ladder.

Help to Buy

Like the majority of the initiatives, Help to Buy is only available to first time buyers. The way it works is that the government will lend up to 20% of the property value. Buyers will need to put down a deposit of 5% and obtain a mortgage to cover at least 75% of the value. 

The benefit of purchasing with Help to Buy: 

• Small deposit of 5% is required.
• Smaller loan to value, and likely to obtain better interest rates.
• Usual mortgage payments need to be made, however, interest does not need to be paid on a Help to Buy loan for the first 5 years. This is one of the main attractions for purchasers as it offers financial breathing space.
• A competitive rate of 1.75% is charged in the first year of payment.
• Many high street lenders are offering Help to Buy mortgages, such as Santander, Halifax and Barclays. 

The draw backs of purchasing with Help to Buy:

• After the first year of repaying the loan, the rate will increase by 1% plus any RPI increases.
• Some experts claim that the scheme has started to inflate house prices, which could cause the housing market to burst when the scheme ends. This will mean purchasers facing negative equity. 

Starter Homes 

The Starter Homes initiative will allow first time buyers to purchase new homes up to £250,000 outside of London, and £450,000 in London, at a minimum of 20% discount on the market value of the property. Only first time buyers aged between 23 and 40 are eligible, and you must need a mortgage and have a maximum income of £80,000, or £90,000 in London.

The majority of the new homes will be built on brownfield land i.e. land that has been previously used for commercial or industrial use.

Developers are usually required to pay a large sum to the local authorities to build, under the scheme, builders are offered incentives to develop on such land as the starter homes are exempt from Community Infrastructure Levy (CIL).

On 11 January, the Home Secretary, Sajid Javid, has launched a new national housing agency called Homes England. The agency has already been supporting developments across the country, including 10,000 new homes on a brownfield site northwest of Cambridge, and a 3,200 new homes site in South Yorkshire. 

Shared Ownership

To qualify for Shared Ownership, buyers do not need to be first timers, but the household income must not exceed £80,000, or £90,000 if buying in London. Shared Ownership is available on both new builds and the re-sale of properties.

The Scheme allows the buyer to purchase between 25% and 75% from a local Housing Association and pay rent on the part they do not own. Buyers are able to purchase further shares at any time from the Association - this is known as ‘Staircasing’. The cost of increasing the share depends on the current market value.

The pros of Shared Ownership are: 

• Further shares can be purchased in the future which enables the buyer some time to save.
• It may be cheaper than renting.
• The property can be sold at any time and benefit in the increase of value.

Disadvantages of Shared Ownership: 

• Service charges are payable, as the properties are all leasehold.
• It may be difficult to staircase if the value increases.
• Possible restrictions in the lender the buyer can use, as the Housing Association will have to approve the mortgage. 

The above gives a brief outline of some of the schemes available. Help to Buy London and Help to Buy ISA options are also worth looking into for first time buyers. There are always pros and cons to these schemes and what is right for your clients will be dependent on their circumstances.  I am sure you will agree that any new initiatives are welcomed for those who want to climb the ladder.  

If you would like to discuss this further, please contact me on 01245 453861 or alternatively email me on [email protected].