In the last year, those wishing to own their own home in England have been offered a helping hand in the form of the new 95% mortgage scheme and the First Homes scheme. These schemes were created by the government in the hopes of helping first time buyers get on to the property ladder. But what are they and how do they work? This guide aims to explain what they mean and how you can qualify.
The 95% Mortgage Scheme
Launched on 19th of April 2021, the 95% mortgage scheme means that those wishing to buy a house can do so with a 5% minimum deposit. The previous expected minimum for a deposit was 10%.
The scheme was introduced to encourage lenders to offer this lower deposit requirement and help first time buyers that were previously struggling to save up a bigger deposit buy a home. This has helped make dreams of home ownership, rather than renting, a reality.
Though this has helped people who can’t save enough for a higher deposit, there are some downsides. The lower the deposit on a house, the higher the monthly payments will be and therefore the more interest accumulated. This means that your property will end up costing more in total than if you were able to save up for a bigger deposit.
Because you will technically only own 5% of the property outright at the start, if property values fall and it lowers the value of your house, there is also the risk of falling into negative equity. This means the house is now worth less than the mortgage you took out on it originally and you will end up paying more than you could.
Don’t let this dishearten you though, the 5% deposit scheme is still a great way to get on the property ladder. This is especially the case if there is no other way for you to own your own home. Many would argue that it’s much better than being stuck in an endless cycle of renting and never seeing any of that money spent ever come back to you – like it eventually does when you pay off a mortgage.
For more advice on deposits and the 95% scheme, talk to an online mortgage broker also known as a mortgage advisor. This is the easiest method of getting mortgage advice, as all you have to do is enter your details into a form (details such as how much you have for a deposit, your income or total income for all people applying for the mortgage, etc.) and then send it off. The advisor will then come back to you with mortgage options to suit your personal circumstances.
First Homes Scheme
The First Homes scheme was introduced in June 2021 and means that if you’re a first time buyer, you could be able to buy a property for a minimum of 30% and a maximum of 50% less than its actual market value.
The home will need to be either a brand new home built by a developer or a home that was originally bought by someone else under the same scheme. This scheme is only available in England.
Eligibility For First Homes
To be eligible for the scheme you must be over 18, a first time buyer, able to get a mortgage to cover at least half the property’s value and your total household income is no more than £80,000 or £90,000 if you live in London.
The local council may also set conditions and prioritise First Homes discounts for essential workers, people who already live in the area and those on lower incomes.
If you meet these requirements, you just need to look for a new home advertised as part of the scheme and contact the developer, you’ll then need to complete an application and send it to the local council. Once approved you can apply for your mortgage, exchange contracts and you’ll get a date when you can move in.
Home Owning Made Possible
Thanks to these new schemes, home ownership is no longer a fantasy. Now that you have an understanding of how these schemes work and if you qualify, it’s time to start house hunting.