Introduction to first-time buyer mortgages
First-time-buyer (FTB) mortgages are designed specifically for individuals who are purchasing their first property and often have limited savings they can use for a deposit. These mortgage products often require a lower initial down payment, sometimes as little as 5% of the property’s value, making them accessible to those who have not yet accumulated substantial funds.
Lenders usually offer these mortgages with favourable terms to help newcomers get their foot on the property ladder, sometimes including incentives such as reduced interest rates or cashback offers.
To further assist first-time buyers, there are several government initiatives aimed at making homeownership more achievable, including:
- The First Homes scheme. Only available in England, it makes it possible for qualifying first-time buyers to purchase a home for 30% to 50% less than its market value. The home must to be their only or main residence and there is a list of eligibility criteria that needs to be met.
- A Lifetime ISA (Individual Savings Account). A Lifetime ISA is designed to help first time buyers purchase their first home or save for later life and allows you to add up to £4,000 annually until you’re 50. Your first payment into your plan must be before you are 40. The government will contribute a 25% bonus to your savings, up to a maximum of £1,000 a year.
You will incur a lifetime ISA government withdrawal charge (currently 25%) if you transfer the funds to a different ISA or withdraw the funds before age 60 and you may therefore get back less than you paid into a lifetime ISA.
By saving in a lifetime ISA instead of enrolling in, or contributing to an auto-enrolment pension scheme, occupational pension scheme, or personal pension scheme:
(i) you may lose the benefit of contributions from your employer (if any) to that scheme; and
(ii) your current and future entitlement to means tested benefits (if any) may be affected.
- Help to Buy. Only available in Wales to buyers who meet strict eligibility criteria, the Help to Buy scheme allows FTB’s to secure a loan to help with the cost of a new-build home. You would need to provide a 5% deposit. The initiative provides an Equity Mortgage of up to 20% of the purchase price. You would need a repayment mortgage to cover the remaining sum.
If you already have a Help to Buy ISA, you can pay into it until November 2029 and can claim the 25% bonus (up to £3,000) when you purchase your first home, until November 2030. If you are purchasing with someone who has their own Help to Buy ISA, both of you will get the 25% bonus.
Arguably, rates matter more for first-time buyers than any other property purchaser. In addition to having to pass lenders’ affordability requirements, there is budgeting to consider, and the likelihood that they will need to furnish their new home. Add in the long-term cost and it’s clear why getting a suitable mortgage product is so essential for those entering the property market.
