It is notoriously hard to get onto the property ladder in England. A lack of supply and high prices push the majority of first-time buyers out of the market. Over the years, the government has introduced schemes designed to help those looking to buy their first property. But are these really the answer?
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We take a look at the schemes available to first-time buyers, and whether they really make a difference.
Help to Buy
The major government incentive for first-time buyers is the Help to Buy: Equity Loan. Often building up a large enough deposit to be able to buy a property is the biggest challenge for those trying to get on the property ladder.
This issue has been exasperated recently, as the coronavirus pandemic has led to a lack of high loan-to-value (LTV) products. This means that first-time buyers need to save up an even larger deposit in order to qualify for a decent deal.
The Help to Buy: Equity Loan provides a low-interest loan towards a deposit. It means that first-time buyers only need to provide a 5% deposit and the government will then lend up to 20% (up to 40% in London). Therefore, they can get a mortgage of up to 75% LTV (55% in London), making it achievable and more affordable to buy a home.
For more information on Help to Buy, check out our article that outlines what you need to know about the new Help to Buy: Equity Loan scheme.
While the Help to Buy ISA scheme was wrapped up at the end of 2019, it was replaced by the Lifetime ISA as a way of helping first-time buyers.
A Lifetime ISA is a savings account designed to help people to save for their first home or for later life. In order to qualify, you must be aged between 18 and 40. Under the scheme, you can save up to £4,000 each year, until you turn 50. The government will then add a 25% bonus to your savings, up to a maximum of £1,000 per year.
The important things to note are that the limit of £4,000 counts towards your annual ISA limit, but that you can hold a Lifetime ISA and another type of ISA as well. As well as this, you can have both a cash and a stocks and shares Lifetime ISA.
If you are using a Lifetime ISA as a first-time buyer, then when it comes time to withdraw the funds, you will need to prove you are doing so in order to buy your first home.
Are these incentives the answer for first-time buyers?
While both schemes have their merits, the market conditions still make it very difficult for first-time buyers. As Daniel Chard from birdandco.co.uk explains, “For those who are successful buying properties, the Help to Buy scheme undoubtedly helps them to either get on the ladder or afford a slightly larger property. The amount of transactions we have seen involving Help to Buy in recent years have increased substantially, demonstrating that it is working to a certain degree.
“Arguably, though, this does not tackle the fundamental problems of lack of supply and rocketing prices, particularly in the South East and London. On the surface, it seems to be prioritising first-time buyers, which is exactly what we want to see considering their struggles these days. That said, there are much better causes to focus on that would help this, specifically building more affordable housing across the country.
“It certainly demonstrates the weaknesses in the system. Ultimately, despite these attempts to change the picture, the scales are still weighing much more heavily on the sides of second- and third- time buyers. For example, the lowering of Stamp Duty has meant those with existing capital are swamping the scene, increasing the disparity further. Yes, this won’t last forever, but it certainly feels like it’s one step forward for the first-timers, and two steps back, whilst others are moving two steps forward at a time.”
Using the first-time buyer government incentives can help you to get on the property ladder. However, even with them, it can still be a challenge.
While the market characteristics of a lack of affordable housing and a vast number of buyers with existing capital prevail, first-time buyers will be at a disadvantage.
However, as the economy improves following the pandemic, we may well see the return of the 95% LTV mortgage. This, combined with incentives such as the Lifetime ISA, will just give first-time buyers a few more options to play with.
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