First-Time Buyers Familiarity with Affordable Home Ownership Schemes

Key Takeaways

• New research reveals that 20% of first-time buyers lack awareness of affordable home ownership schemes.
  

• Mortgage Guarantee Scheme: Despite generating an average of 2,900 monthly online searches, 88% of first-time buyers express unfamiliarity with this scheme.
• Guarantor Mortgages: 87% of first-time buyers are unaware of this option, which allows a guarantor (usually a family member) to support their mortgage application.
• First Homes Scheme: Introduced in April 2021, this scheme offers homes with a minimum 30% discount on market value for first-time buyers.
• Shared Ownership: Surprisingly, 58% of first-time buyers remain unaware of this scheme, which allows purchasing a share of a property and paying rent on the remaining portion.
• Lifetime ISA: Despite consistently high search volumes (74,000 monthly searches), 51% of first-time buyers are not taking advantage of this savings account with a government bonus for homebuying.

New research from Barratt Homes reveals one in five (20%) first-time buyers lack awareness of affordable home ownership schemes. The study explores the most sought-after affordable home ownership options, shedding light on the number of first-time buyers who are unaware of the accessible pathways to home ownership.

The lesser-known paths to affordable home ownership in the UK

As cost-effective pathways to home ownership continue to be available for first-time buyers in the UK, what opportunities might be overlooked due to limited awareness of these schemes?

Despite generating an average of 40,500 monthly online searches, it may be surprising to discover that 58% of first-time buyers remain unaware of the shared ownership scheme and its potential benefits for helping them enter the property market.

Likewise, Lifetime ISAs consistently generate the highest monthly search volume (74,000 monthly searches) among the existing affordable home ownership schemes. Nonetheless, over half of first-time buyers are not taking advantage of its benefits.

Barratt Homes has uncovered the most sought-after schemes as told by the highest average monthly online searches and has explored the specific aspects of these schemes that first-time buyers are most curious about. Terry Higgins, Group MD for TNHG New Build Mortgage Services answers the most asked questions.

1. Lifetime ISA

“A Lifetime ISA (Individual Savings Account) can be used to buy your first home or save for later life. To qualify for a Lifetime ISA, you must be 18 or over but under 40. Each year you can deposit up to £4,000 until you’re 50 years old, and you must make your first payment before you turn 40.

“This scheme works differently to a normal savings account as the government adds a 25% bonus to your savings, up to a maximum of £1,000, per year.”

Answering the most asked question, when are Lifetime ISA bonuses paid, Terry explains:

“Owners of a Lifetime ISA can achieve a 25% government bonus capped at £1,000 per year, on your savings. Expect monthly payouts with a processing time of 4-9 weeks. It's important to note that the bonus applies solely to contributions, excluding cash interest or investment growth. For additional details, consult the government website: www.gov.uk.”

2. Shared ownership

“Shared Ownership allows first-time buyers to purchase a share in a new build or resale property, where they pay a mortgage on the share they own and subsidised rent on the remaining share to a housing association.

“As the purchaser only needs a mortgage for the share they are purchasing, the size of the deposit is usually lower than the amount required when purchasing outright.

“There’s an option to increase the share in the property via a process known as ‘staircasing’, and, in most cases, you can staircase to 100%. In this instance, the shared owner will no longer pay rent, just their mortgage along with any relevant service charges and ground rent.”

“Barratt Homes has recently introduced "Kickstart," a shared ownership initiative developed in collaboration with Legal & General Affordable Homes. This scheme aims to facilitate entry onto the property ladder for a wide range of individuals, including first-time buyers, growing families, and others seeking affordable homeownership opportunities.

Who pays for household repairs?

Terry adds:

“As a homeowner, be prepared for ongoing repairs and maintenance costs, irrespective of your ownership share. Opting for a new build property may offer added benefits, such as potential coverage for certain repairs under the building warranty or an 'initial repair period' provided by the landlord.”

3. First homes scheme

“The First Homes scheme is exclusively targeted at first-time homebuyers aged 18 or over in England who have less than £80,000 in combined income. It allows them to purchase a new-build home with a minimum discount of 30% off, but in some areas these discounts can reach up to 50%.”

How do you apply to the first homes scheme?

Terry says:

“In considering the First Homes scheme, potential properties include new homes built by developers or homes purchased through an estate agent, provided someone else bought them through the scheme earlier. Worth noting, the scheme is exclusively available in England.”

“Councils may have specific eligibility criteria for the First Homes scheme, such as prioritising key workers, local residents, or those with lower incomes. To find eligible homes, explore listings by participating developers or estate agents in your area. Reach out to them to express your interest, and they will guide you through the application process and submit it to the local council.”

4. Guarantor mortgages

“Guarantor mortgages enable parents to help their child buy a home by using their property or savings as assurance, and agreeing to cover mortgage payments if any are missed. Certain guarantor mortgages can allow people to borrow up to 100% of the home’s value.

“This scheme is useful for first-time buyers on lower incomes who cannot afford a large deposit or large monthly mortgage payments.”

Who can be a guarantor for a mortgage?

Terry clarifies:

“Traditionally, the co-signer for a mortgage was often a parent or close family member, but today, lenders may extend this role to include family, friends, or loved ones. In certain cases, support can be provided by up to four individuals, although practices may vary among lenders.”

5. Mortgage guarantee scheme

“Earlier this year the government announced its extension of the 95% mortgage guarantee scheme. This scheme allows people to purchase a property worth up to £600,000 with only a 5% deposit. Unlike the First Homes schemes, this scheme extends past new-build homes.

Introduced in April 2021, the initiative has already helped more than 24,000 households. Initially planned to conclude by year-end, it has now been extended until June 2025.

How do I apply for the mortgage guarantee scheme?

Terry elaborates:

“With this program the government provides lenders with financial guarantees, enabling them to offer mortgages covering up to 95% of the property's value, subject to regular affordability assessments, for homes valued up to £600,000. Consequently, there's no need for a separate application for the mortgage guarantee.”

Steve Mariner, Sales and Marketing Director at Barratt Homes, said:

“Affordable home ownership schemes are great for helping first-time buyers get onto the property ladder, and having a variety of schemes available means that they can choose the best fit for them, depending on their circumstances. We have just launched a new Shared Ownership scheme with Legal and General Affordable Homes called Kickstart so prospective buyers have even more options to explore. With schemes like these, your deposit is lower, your mortgage is smaller, and you can buy a larger share in your future.”

“However, first-time buyers need to understand the ins and outs of each scheme first before deciding which would work best for them. This is why speaking to mortgage experts for guidance is always recommended.”