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First Time Buyer Savings Schemes: Your Options Explained

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Even with the popular Help to Buy ISA abolished, it doesn’t mean hopeful homeowners are left to come up with deposit money alone.

Many other alternatives exist that make saving for a house much easier.

Unsure what options are available to you? 

Here’s a guide to first time buyer savings schemes.

First-Time Buyer Checklist

House Saving Schemes 

There are a number of government savings schemes for first-time buyers, designed to help you get your foot on the property ladder. 

Help to Buy ISA

Did you take out an ISA for first time home buyers before the scheme closed back in November 2019?

Here’s a look at what this means:

  • You have a decade to use the ISA and claim the bonus
  • You can put away up to £200 a month
  • The government will continue to boost your savings by 25% 
  • It will take around 4 and a half years to claim the maximum bonus of £3,000 
  • It offers tax-free interest
  • You’ll need to have saved at least £1,600 before you qualify for the government’s minimum bonus of £400
  • Your solicitor will apply for the government bonus when you come to buy a home
  • Interest rates vary – they’re dependent on your provider

You can continue saving using the scheme until November 2029.

You can no longer take out this type of ISA – it’s only there for existing users. However, there are other save to buy scheme options available.

Help to Buy Equity Loan 

One strand of the Help to Buy saving scheme remains – the Equity Loan

Here, the government lends you up to 20% of the purchase price (40% in London) of your new-build home. You can borrow a minimum of 5%.

You won’t be charged interest for the first 5 years of owning the property. The equity loan, your deposit, and your repayment mortgage cover the cost of buying your newly built home. For example, 75% mortgage, 20% equity loan and 5% deposit.

It’s similar to the Help to Buy ISA house deposit scheme in that it’s designed to make purchasing a property easier. That dream home is closer than you might think! However, there are rules in place, including:

  • You must buy from a registered homebuilder on the Help to Buy: Equity Loan scheme
  • There are maximum property prices in place e.g. £600,000 in London & £186,100 in the North East
  • It’s for England only
  • For the first 5 years it’s interest-free and you pay a £1 monthly management fee
  • From year 6 onwards:
    • Interest is 1.75%
    • Interest rates will rise each year in April
    • You’ll continue to pay interest until your loan is paid
  • You must repay the loan in full:
    • At the end of the loan term
    • When you pay off your mortgage
    • When you sell
    • If you don’t follow the terms

Note: this scheme runs until 2023.

Lifetime ISA (LISA)

While not specifically for first time buyers, the Lifetime ISA is a great help, allowing you to save up to £4,000 a year. It also gives you up to £1,000 (25%) as an annual bonus on top. 

It can also be used for retirement, however, is most popular with those who haven’t owned a home before.

Some things you need to know before taking one out:

  • Each person gets their own LISA – so couples can have one each
  • You’ll be penalised if you don’t use the money for a first home (or retirement) once withdrawn
  • You can contribute to a cash ISA also
  • You can only use on a property costing £450,000 or less
  • It must be open for a year before you can buy a property
  • You can transfer between providers

The scheme is less flexible than previous Help to Buy ISAs, but it’s still a great boost for those saving for a deposit. The government still tops up first time buyers’ savings accounts in the same way.

You could also consider taking out stocks and shares LISA, rather than a cash one. This offers the chance of greater returns, but also potential for a fall too. 

Fixed-Rate Bonds

If first-time mortgage ISAs don’t appeal, you could take out a standard savings account. This won’t offer the bonuses associated with a LISA, however.

You should also bear in mind that instant-access accounts don’t come with the lucrative interest rates found in other schemes. Therefore, putting your money in a fixed-rate bond for a few years could help you get a better deal.

It is possible to get on the property ladder without a leg-up from the government.

Shared Ownership

Shared ownership is ideal for those who can’t afford a full mortgage, including those wondering how to save for a house on a low income. 

It allows you to buy a share of your home (between 25%-75%) and rent the other part at a reduced rate. It’s not only available to first time buyers but is incredibly popular with them. 

To qualify, your household will need to earn less than £80,000 (£90,000 in London). 

How Much to Save For a House

You’ll usually need to save between 5-20% of the purchase price.

This is one of the most daunting first time buyer fees you’ll have to contend with. Generally, it’s recommended to save as big a deposit as possible. 

While that might sound easier said than done, it’s important because it will likely make your mortgage repayments much more manageable. A general rule of thumb is larger deposit = better interest rates. The best deals are secured for those who have managed to save a high amount.

It always helps to know where you stand before going any further. The last thing you want to do is commit to monthly repayments you can’t keep up with. Use a mortgage affordability calculator to see how much you can afford to borrow. 

How to Save For a House Deposit

With or without government support, saving for a deposit can be difficult. 

So, here are some handy tips:

  • Downsize your current rental, move into a shared house, or move out of the city, e.g. London
  • Move back in with family
  • Make lifestyle changes e.g. shopping habits, holidays
  • Sublet your rental (if your contract allows it)
  • Set a budget and stick to it
  • Make small sacrifices here and there (every little helps!) 

The best way to save for a house is to take things at your own pace. It can take years, so don’t feel pressured – and don’t rush the process. 

Also, it helps to have an idea of what kind of property you want to buy, and where. Location and size will have a huge impact on purchase price; and therefore how much you need to save. Use the sale price of similar properties as a benchmark.

What’s Next?

There are a number of different mortgage options out there, dependent on how much you can afford to save. 

Speak to an adviser to help you get a better understanding of your situation.

Get a mortgage quote for free to help you get started.

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Last Updated: January 25th, 2024