Prime Minister Andy Burnham this weekend announced a new plan to help first-time buyers get on the property ladder.
Your First Home is similar to Help to Buy, the popular home buyer support program that was canceled in 2023.
Both aspiring homeowners and the mortgage industry have been eagerly awaiting an alternative, and now it appears to have arrived.
It is due to be formally unveiled in the Budget on October 28, so full details have not yet been published. But from what we know so far, does this system stand up to – or improve upon – the old first-time buyer support system?
And will it really help more people take this important step into property ownership that currently seems out of reach for many?
Here are some of your burning questions, answered
Your first home: what is it and how does it work?
Under the scheme, the government will offer a 20% loan to prospective first-time buyers in England who purchase a new property from a developer registered with the scheme.
Buyers need only a 2.5% deposit to purchase a home under the program and the loan will initially be interest-free.
There will also be a cap on household income with caps on local property prices to ensure the scheme is properly targeted.
More details are due to be published when the scheme is formally presented in the Budget on Wednesday 28 October.
Who can benefit from Your First Home?
The eligibility criteria are slim, but so far, we know that users must be first-time buyers purchasing a new property in England and with a 2.5% deposit. Income limits indicate that the scheme will not be open to those on higher incomes.
How does your first home compare to Help to Buy?
Help to Buy: Equity Loan was a government scheme that ran from April 2013 until March 2023. It provided a 20% loan to buyers with a 5% deposit to purchase new homes.
Your first home will require a smaller deposit of 2.5% and it is not yet clear whether there will be a higher loan offer for Londoners. Help to Buy has offered a 40% loan to those buying in London.
How will the program help those struggling to buy a home?
The idea behind Your First Home is that it reduces the typical deposit a buyer will need to purchase a home to 2.5%. By providing a loan, the scheme also reduces the percentage of mortgage loans required.
Most first-time buyers currently need 5% to qualify for a mortgage – with exceptions for some Low or no deposit Offerings.
With house prices rising in many parts of the UK, building up a 5% deposit can be difficult for many and almost impossible for others, especially for renters.
The government said the new scheme would “address the deposit barrier for first-time buyers who would otherwise be unable to buy their first home”.
How much deposit will I need and how much can I borrow?
The answer to this question depends largely on house prices in your area, but Nicholas Mendes, technical director of mortgages at broker John Charcol, did some numerical analysis to show how this works using the average UK house price of £272,611.
With Your First Home, the buyer will need to make a deposit of £6,815. They will receive a loan of £54,522 from the government and will then need to take out a mortgage of £211,274.
He also collected the sums for a property worth £230,000, which is the Rightmove average for first-time buyers. For a property at this price, the deposit would be £5,750 along with a loan of £46,000 and a mortgage of £178,250.
A house worth £200,000 would need a deposit of £5,000, a loan of £40,000 and a mortgage of £155,000.
Your First Home: What Are the Potential Problems?
While it has been hailed as a long-awaited and much-needed alternative to Help to Buy, it has also been criticized for being limited to new home construction, which often comes at a premium.
Stephanie Charman, chief executive of the Association of Mortgage Brokers, said its success would depend on the availability of new homes in areas where buyers needed them.
She added: “Helping people overcome the deposit hurdle is positive, but affordability remains a challenge and we need to ensure there are enough suitable homes for them to buy.”
There is another consideration – the loan must be repaid. Although it is not clear when this will happen or how long the interest-free period will be, users will need to take this into account when taking out a mortgage.
“Buyers need to be clear about the terms before committing,” Nicolas Mendes said. “The details set out in the budget on October 28, including how long the loan will remain interest-free, will be key.”
What other schemes are available to help first-time buyers?
If your first home isn’t an option for you, there are other solutions to help people get on the property ladder.
Joint ownership – A government-backed scheme where buyers can rent part of a property and buy the rest. This reduces deposits and mortgages significantly.
100% real estate loans – No deposit mortgages are available for reliable tenants such as Skipton Building Society’s Track Record mortgage. Seek advice from your broker first.
Low Deposit Mortgage – Lenders such as Santander and Lloyds offer solutions for borrowers with low deposits. Again, go to a broker or advisor first to see how this can work for you.
Family assistance – Buyers who do not have a gifted or loaned family deposit can still benefit from Family Backed Mortgage support. The 100% mortgage offered by Family Building Society or Barclays Springboard are strong options in this market.
There are pros and cons to all of the above, and for some the new government scheme may be the best option. “The right route will depend on the buyer’s circumstances and the type of property they want, where talking to a broker can make a real difference,” Mendes added.
