The property ladder: Get help with deposits and mortgages

photo of a serious-looking couple reflected in the window of an estate agent office

The challenges of buying your first property go far beyond lattes and avocado toast; we ask the experts for advice on getting onto the property ladder.

Despite some evidence that the property market is cooling, it is still extremely difficult for first-time buyers to amass the cash to buy their first home.

The barriers to entry include the need to save a hefty deposit as well as convince a mortgage lender that they can afford monthly payments for their home. These tasks have become much trickier since regulation was tightened following the financial crisis in 2008.

But for young people who cannot quite hit the mark alone, there are schemes designed to help – some offered by the government and some by banks. All have different pros and cons and are suitable for different types of homebuyers at different stages in the process.

“Buying a property is a big decision – even more so for a first-time buyer, and in a complicated market – but there is a wide range of products and lenders out there to help most circumstances,” says Alex Beavis, mortgage director at financial adviser Sesame Bankhall.

Here are a few things to start thinking about as you prepare to buy your first property.

Schemes to help with your deposit

For many people, raising a deposit for a home is the toughest task. The following schemes can help.

Lifetime and Help to Buy ISAs

What they do: Both schemes aim to help those saving for a deposit by adding a government top-up to the savings. With the Help to Buy ISA, the top-up comes when you make the house purchase, while with the Lifetime ISA, the government adds the money on as you go. In each case, the government puts in 25% of what you save, up to £1,000 a year in a Lifetime ISA, and up to £3,000 in total for a Help to Buy ISA.

The small print: These schemes have some restrictions. The Help to Buy ISA is now closed to new applicants, while the Lifetime ISA (LISA) is available only for those who apply for it while they are under 40. You can only pay into the account until you reach 50. The money can only be used to buy your first home or, after you reach the age of 60, to pay for retirement. The home you buy must be worth under £450,000 and bought with a mortgage, and you must not have owned property before.

Pete Mugleston, Managing Director at the broker onlinemortgageadvisor.co.uk, says the LISA scheme carries hefty exit fees for those who want to use the money for any other purpose. However, he adds that the fact that two first-time buyers (as part of a couple, for example) can open one each and both benefit is a plus. “If your plans meet the criteria, a LISA might be the right scheme for you,” he says.

95% mortgage guarantee scheme

What it does: High Street lenders are incentivised to offer better rates to those with just a 5% deposit, thanks to a government scheme that effectively insures them against the extra possible losses from doing so.

The small print: The scheme is available on homes worth under £600,000 and customers must have a repayment mortgage, not interest only. Mugleston says that the scheme initially runs until December 2022, and that the loans might not offer the best value for everyone so they should check the whole market.

Schemes to help you get a mortgage

Finding a lender that will loan you the amount of money required for your first home is also a tricky task. The following schemes can help.

Shared Ownership

What it is: Shared Ownership is a cross between buying and renting, where a borrower buys a percentage of a property that they’re planning to live in and rents the rest.

Buyers can increase their shares in the property over time, working up to owning 100%.

The small print: Only certain mortgage providers will offer Shared Ownership and there may be higher fees.

Beavis, at Sesame, says that shared equity schemes have limitations in terms of the types of properties they apply to, and can be quite expensive.

“In theory the concept is a good idea, but it needs further innovation to solve some of the key barriers that make it unappealing to first-time buyers before it becomes a mainstream alternative,” he says.

First Homes

What it is: A Government scheme offering discounted homes in some areas to help first time buyers. In some cases, discounts are up to 50%.

Eligibility for the scheme is at the discretion of the local council and may be limited to ‘key workers’.

The small print: First Homes is limited to new build properties, or those that are already part of the scheme, in England. When you sell, you must give the same percentage discount to the new buyer as you received. There’s a limit on the cost of the property, too – £420,000 in London and £250,000 elsewhere in England after the discount is applied.

Parental Help

What it is: The ‘Bank of Mum and Dad’ is well known as a source of housing deposits – though, of course, individual family circumstances vary so widely that these gifts are often cited as a big source of perpetuating inequality.

But such generous ‘loans’ aren’t the only way that parents can help.

A guarantor mortgage, where the parent is responsible if the child defaults on the loan, is one way to get a bigger mortgage approved. Another option allows parents to contribute to mortgage payments using a Joint Borrower Sole Proprietor (JBSP) mortgage.

“This is useful for a first-time buyer that would struggle to be eligible for an appropriate mortgage and is a way for a family member to help out in the long-term, not just cover off a deposit,” says Beavis at Sesame.

The small print: These specialist mortgages are harder to come by than the ordinary type, and rates may not be as competitive. When things go wrong financially, these types of mortgages can also cause family problems if there are defaults.

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