The government has announced a new scheme that’s to be launched with the intention of helping first-time buyers get onto the property ladder. Whilst the final details are yet to be confirmed, the main features of the Your First Home scheme have been released. Here, we’ve detailed what is known about the scheme so far.
What is the Your First Home scheme?
The new scheme was announced by Andy Burnham on 26th September. Its aim will be to enable first-time buyers in England to buy a new-build property with just a 2.5% deposit and using a government-backed equity loan.
Government-backed equity loan
The equity loan will be for 20% of the property value with the benefit of having an initial interest-free period. A mortgage will need to be taken out for the remaining balance. With the 20% equity loan and 2.5% deposit, that would leave a loan-to-value (LTV) ratio of 77.5% for the mortgage.
For example, if you bought a new-build home for £300,000, your deposit would be £7,500 and the equity loan would be £60,000. You’d need to take out a mortgage for £232,500 to cover the rest of your purchase.
This arrangement would enable a first-time buyer to benefit from a lower interest rate than if securing a 95% mortgage outside of the scheme. This could save a new homeowner a significant sum of money each month in comparison.
At the moment, further details about the interest-free period of the equity loan aren’t known or what will happen after that period, so that cost would also have to be taken into account.
Minimum deposit of 2.5%
The low 2.5% minimum deposit requirement enables those who are earning a regular income but have been struggling to save an adequate deposit to meet their deposit goal faster. Many first-time buyers are unable to realise their dreams of becoming homeowners without help from family members. But for those without access to the ‘Bank of Mum and Dad’, this may give them the break they need to finally buy their first homes.
Will there be any restrictions under the Your First Home scheme?
To ensure that support is targeted at those who need it the most, certain restrictions will be in place. A household income cap and a deposit cap will be set so that those who have saved bigger deposits and those who earn higher salaries are excluded from using the scheme. That way, first-time buyers who are struggling the most to buy a home on their own can take advantage of the help available.
Local property price caps will also be set. This will limit the cost for potential homeowners when buying their first home, with the price cap depending on where the property is located.
Does the Your First Home scheme apply to all properties?
This scheme is specifically for new-build homes. This means that a first-time buyer preferring to buy an older property won’t be able to benefit from the scheme.
The newly built properties will only be available from developers participating in the scheme. It is expected that they will pay a fee when signing up, which will help to cover the scheme’s costs.
When will more details be known about Your First Home?
Further details about the Your First Home scheme will be announced during the Autumn Budget on 28th October. These details are expected to include:
- Eligibility criteria
- Information on the deposit, income and property price caps to be set
- The length of the interest-free period and what happens after that
- How the equity loan will work
- Which mortgage lenders will participate and what their criteria will be
- How the costs of the scheme will be met
- The implementation guidelines
Other details need to be addressed too, such as whether there will be any restrictions if buyers later wish to move home or want to repay the equity loan early.
The scheme is set to be open for registration by the end of 2026 but, as yet, there’s no specific date for this.
Discover your first-home buying options
On the surface, the Your First Home scheme offers a positive way to tackle one of the biggest barriers facing first-time buyers, which is saving an adequate deposit. However, at this stage, there are too many unknowns to speculate how beneficial this scheme will be.
Until these details are finalised and an application date is released, there are some steps you can take to prepare for your first mortgage. First, review your credit file as lenders will check your creditworthiness as part of the affordability checks. Next, ensure that you’ve budgeted for the additional buying costs, such as valuation and survey fees, legal fees, insurance costs, moving costs, etc.
Give us a call on 01322 907 000 and our brokers will review your circumstances and guide you on the first-home buying options that are currently available to you.