Help to Buy alternatives for first-time buyers
18 April 2023
First-time buyers have previously had the option of using the Help to Buy scheme, also known as the Help to Buy Equity Loan, to purchase their first home. However, the scheme ended on Friday 31st March 2023 and has been closed to new applicants since 31st October 2022.
So where does that leave first-time buyers? Luckily, there are many Help to Buy alternatives available to make your homeowning dream a reality.
Shared ownership: Low mortgage payments
Similar to Help to Buy, shared ownership is a great option for those unable to afford the full cost of a home. In this scheme, you would buy a share (usually between 25% to 75%) of a property from a housing association, while paying rent on the remaining share. This means you can get on the property ladder with a smaller deposit and mortgage, as you only need to pay for a share of the property. Find properties you can own with shared ownership.
With shared ownership, you will still need to secure a mortgage to pay for your share of the property, but your mortgage payments will usually be lower than if you were buying the whole property outright.
More options for first-time home buyers
Not only is shared ownership available but many other schemes are a viable option if you’re looking to buy your first home and can’t afford to pay for the full cost of it.
To find the best mortgage for you, speak to a professional mortgage advisor who can help you understand the risks and benefits of each mortgage.
Deposit boost mortgage
Ideal for those struggling to save enough money for a deposit, the deposit boost mortgage allows you to borrow a higher percentage of the purchase price of a property than you would be able to with a standard mortgage. The lender will provide an additional amount of money, typically between 5% and 20% of the purchase price, to help boost your deposit.
This can also be helpful if you have a small deposit but want to buy a more expensive property. With a deposit boost mortgage, you will still need to provide some of your own money towards the deposit, but the additional amount from the lender can help you meet the minimum deposit requirements set by most lenders.
Beware of higher interest rates & fees
A deposit boost mortgage may come with higher interest rates and fees than a standard mortgage, as the lender is taking on more risk by providing a larger loan. Carefully consider your finances before applying for a deposit boost mortgage as you’ll need to afford the monthly repayments on the higher mortgage amount.
Income boost mortgage or JBSP
An income boost mortgage, also known as a Joint Borrower Sole Proprietor (JBSP) mortgage, is a way of adding a family member or friend’s income to a mortgage to increase your max borrowing.
Your family member or friend will become a co-borrower and their income and credit score will be taken into account when assessing the affordability of the mortgage.
Co-borrower not entitled to share of property
Because only one person is named as the owner of the property, the co-borrower does not have any legal claim to the property. This means that if the property is sold or the mortgage falls into arrears, the co-borrower will not be entitled to any share of the property or the proceeds of the sale.
First homes scheme
If you’re a key worker and a first-time buyer, this scheme may be for you. Under the First Homes Scheme, newly built homes are sold at a discount of at least 30% off the market price to local first-time buyers and key workers. You will also benefit from lower deposit requirements, as the scheme allows you to borrow up to 95% of the property value through a mortgage.
You must have a combined household income of £80,000 or less (£90,000 or less in London), and you’d need to show a genuine need for the property. The scheme is only available for new-build properties and you must be purchasing your main residence.
Family springboard mortgage
This scheme can help first-time buyers who may not have a large deposit saved, by allowing you to borrow up to 100% of the property value with the help of a family member. This helps you to avoid the cost of mortgage insurance, such as mortgage indemnity guarantees or high loan-to-value fees.
Under the Family Springboard Mortage, your family member provides a lump sum deposit, which is held in a special savings account for a fixed term, usually three years. During this time, you’ll make mortgage payments as usual. At the end of the term, your family member’s savings are returned to them with interest – provided that you’ve kept up with your mortgage payments.
You may need to pay higher interest rates
Despite your family member providing financial help, you’re still responsible for repaying the mortgage. If you fall behind on payments, your family member’s savings could be at risk. You may also need to pay a higher interest rate than you would with a standard mortgage, and the savings account may offer a lower interest rate than other savings accounts.
Lifetime ISA (LISA): Boost your savings
If you’re a UK resident aged between 18 and 39, this may help you reach your deposit goal for your dream home. The Lifetime ISA is a savings account designed to help you save for your first home or for your retirement.
You can save up to £4,000 per year and receive a 25% bonus from the government. This means that for every £4 saved, the government will add an extra £1 – up to a maximum bonus of £1,000 per year. The savings and bonus can be used to purchase a first home worth up to £450,000 or can be accessed tax-free from the age of 60 to fund retirement.
Penalties can incur for early withdrawal
If you withdraw the money before you’re 60 and it’s not for buying your first home, you will incur a penalty. The bonus and any growth in your savings will be lost and you’ll need to pay a withdrawal charge of 25%. This means you’ll end up with less money than you originally saved. So make sure you withdraw the money for your first home or for your retirement.
Own a property with shared ownership
If you’re interested in shared ownership as a Help to Buy alternative, we’re more than happy to help. Find your dream home with shared ownership here.
Alternatively, contact our friendly team here.
Frequently asked questions
The Help to Buy scheme ended on 31 March 2023. This means that all home purchases using the scheme must have been completed by this date. Although reservations made before this date will still be eligible for the scheme provided that the purchase is completed by 31 May 2023.
After announcing the end of Help to Buy, the UK government announced that a new scheme called First Homes will replace Help to Buy.
First Homes is designed to help first-time buyers and key workers onto the property ladder by offering newly-built homes at a discount of at least 30% off the market price. The discount is funded by contributions from developers and is passed on to the buyer as a permanent reduction in the price of the property. The discount is tied to the property and is available to future buyers of the property if they meet the eligibility criteria.
There are a number of schemes available to get you onto the property ladder which are great alternatives to Help to Buy. Some of these are mentioned above and include:
Lifetime ISA (LISA)
First Homes Scheme
Deposit boost mortgage
Family springboard mortgage
Income boost mortgage (JBSP)
There are several alternatives available. One of which is shared ownership. This allows you to buy a share of a property (usually between 25% and 75%) and pay rent on the remaining share. You can buy more shares in the property over time, known as “staircasing,” until you own the property outright. Find out more about shared ownership here.
When Help to Buy ends on 31st March 2023, it will no longer be available for new home purchases. If you’ve already bought a property through the scheme, you’ll still have to pay back the equity loan as agreed with the scheme’s terms and conditions.
If you used the Help to Buy Equity Loan scheme, you have to pay back the equity loan within 25 years of taking it out or when you sell the property – whichever comes first. The loan is interest-free for the first five years, after which interest will be charged. The interest rate will start at 1.75% and will increase each year in line with inflation (as measured by the Retail Prices Index) plus 2%.
If you can’t repay the loan, you may be able to extend the loan term or apply for a further advance to pay it off. However, these options are subject to affordability checks and may not be available to everyone.
If you are eligible for a LISA and are using it to save for a first home or retirement, the government bonus can make it a worthwhile option.
However, if you are not sure whether you will need to withdraw the money before age 60 or are not comfortable with investment risk, a LISA may not be the best option for you.
Yes! You can use the savings in your Lifetime ISA (LISA) as a deposit to buy your first home, as long as you meet the following conditions:
You must be a first-time buyer: This means you have never owned a property before, either in the UK or abroad
The property must be in the UK: You can use your LISA savings to buy a property in the UK, as long as it costs £450,000 or less
You must be buying with a mortgage: You cannot use the LISA to buy a property outright. You must be taking out a mortgage to finance the purchase
You must have had the LISA for at least 12 months: You cannot use your LISA savings to buy a home until you have had the account open for at least 12 months
If you meet these conditions, you can withdraw the savings from your LISA and use them as a deposit to buy your first home. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year, which can also be used towards the purchase.
There are many banks and financial institutions in the UK that offer Lifetime ISAs. Here is a list of some of the major providers:
AJ Bell Youinvest
The Share Centre
Skipton Building Society
Newcastle Building Society
Nottingham Building Society
This is not an exhaustive list, and other banks and financial institutions may also offer Lifetime ISAs. It’s important to compare the interest rates, fees, investment options, and customer service of different providers before choosing a LISA to ensure it meets your needs and goals.
Early withdrawal penalty
If you withdraw money from your LISA before you turn 60 and are not using it to buy your first home, you will incur a penalty of 25% of the amount withdrawn. This means that you will lose the government bonus and some of your own money.
Limited contribution allowance
You can only contribute up to £4,000 per year into a LISA. If you want to save more than this amount, you will need to use other savings vehicles.
You must be aged 18 to 39 to open a LISA, and you can only make contributions until you reach age 50. This means that the LISA may not be a suitable option for individuals who are older or who have already purchased a property.
Impact on means-tested benefits
If you receive means-tested benefits, such as Universal Credit or Housing Benefits, your LISA savings could affect your eligibility. This is because the savings in a LISA are counted as assets and could be taken into account when assessing your income and assets.
Yes, you can contribute the full £4,000 annual allowance into a Lifetime ISA in a single lump sum payment, or through multiple payments throughout the tax year.
If you contribute the full £4,000 into a LISA, you will not be able to contribute any more money into another type of ISA during the same tax year. This is because the overall annual ISA allowance for a tax year is £20,000, and any contributions made to a LISA will be included in this allowance.
If you buy a property using a Lifetime ISA, you are not required to live in the property for any specific length of time.
Yes, you can use funds from a Lifetime ISA (LISA) to buy a flat, provided it is your first home and the purchase price is £450,000 or less. The LISA funds can be used for the property deposit or to cover the property purchase price.
Make sure that the property meets the LISA rules and restrictions. For example, if you are purchasing a leasehold flat, you should ensure that the lease term is long enough to meet the lender’s requirements and that there are no restrictions on selling or subletting the property.