First-Time Buyers guide to HomeBuy Schemes

Looking to buy your first home can be one of the most exciting but most daunting experiences so far in your life. All this talk of deposits, mortgages and insurance can leave you feeling unsure, concerned and a bit like a fish out of water. That’s why it is vital that you understand each and every part of the house buying procedure so you don’t find yourself in financial difficulty further down the line.

You will be classed as a first-time buyer if you have never owned a property in the UK or the rest of the world before; and if you do classify within this category, there are some schemes in place that could help you take your first steps onto the property ladder.

For example, the government offer what are called ‘HomeBuy schemes’, which are in place to help those who are looking to buy a house but can’t necessarily afford it. Part of these schemes is the ‘FirstBuy’ one, aimed specifically at first-time buyers. This type of scheme only became available in September of last year but has already housed many first-time buyers who had previously struggled to get onto the property ladder.

FirstBuy works by housebuilders and the government offering a maximum of a 20% equity loan to first-time buyers, with first-time buyers then giving just a 5% deposit and taking out a 75% mortgage for the remainder of the property. By having additional help with their loans and only having to contribute 5% themselves, this has proven a feasible way for those who couldn’t previously have afforded to buy. The loans provided by the government and housebuilders are then repaid when the property is sold; with the share provided by the government being made available for another affordable housing investment.

The loan provided will remain interest free for the first 5 years, allowing first-time buyers to adjust to managing their bills; after this period of time a fee of 1.75% of the value of the loan will be charged. This will increase yearly by the RPI (Retail Price Index) plus an additional 1%. E.g. if the RPI was 5%, the 1.75% fee would then increase by 6% to 1.86%. So, if the loan amount borrowed was £60,000, your fee rate of 1.75% in the sixth year would equate to a yearly fee of £1,050, which is a monthly fee of £88. Then, in your seventh year this would increase to 1.86%, equating to a yearly fee of £1,116, monthly fee £93.

If you are able to save money along the way to pay some of your loan off, your fees will reduce and you will be entitled to more money when your property is sold. This is what is called, ‘staircasing’.

You can be eligible for one of the government’s HomeBuy if you are within a household that earns less than £60,000 a year. The household could consist solely of yourself, you and a partner or you and a friend.

If you are thinking of buying your first home, the government’s HomeBuy schemes could be something that could help you take that first step. But remember, whilst it may seem like a fantastic prospect – owning your first home – there are a lot of financial commitments and you will need to sit and calculate all of the figures before you go ahead. Get advice from parents, speak to advisors about the HomeBuy scheme and speak to your bank about your eligibility for a mortgage, what fees you will have to pay and what your monthly payments may be. Take your time.

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