Deciding on buying a first property is one of the most exciting times of our lives, with many hurdles to overcome. The first of these is whether you need a deposit or not, and how to raise the money if you do. Let’s start with the assumption that the Bank of Mum and Dad is closed.
A deposit is usually around 10% of the purchase price of the property, although there are many ways to get help with the process. In last year’s March budget, the government announced probably the best scheme for first-time buyers – the Help to Buy ISA. With no minimum monthly deposit, the scheme means that would-be buyers can put up to £200 a month into this special type of ISA, and the government will contribute a quarter of the amount, up to its maximum of £12,000. This means that savers can get up to £3,000 towards their first property. There are no restrictions on how quickly you save.
As prices in the property market continue to rise, it is getting more and more difficult for younger people to get on the property market. This is especially the case when other factors are built in, such as student loans and the cost of living in cities (where the work is). So the government is doing something really positive for first-time buyers, and targeting one of the main stumbling blocks. The Help to Buy ISAs are restricted for first-time buyers only, so there is little chance of professional buy-to-let or development companies using the scheme.
There is also evidence of clear and helpful thinking from the government in the structure of this ISA. For a start, the minimum threshold to deposit is only £1,000, and can be used for properties selling for a maximum of £250,000, although that figure rises to £450,000 in London.
Another recent helpful idea from the government is the Help to Buy Equity Loan. For any prospective buyers who already have a 5% deposit, the government will provide a loan of up to 20% of the property price, up to a maximum of £600,000, which is interest-free for as much as five years. This can be repaid either before or after the property is sold.
Although a deposit has a normal benchmark of 10%, there are ways to improve this in the buyer’s favour. The government’s Help to Buy initiative offers both a loan guarantee as well as an equity loan. Either of these schemes require only a 5% deposit, with the government guaranteeing the loan with either a bank or building society, or to take an interest-free (for five years) loan from the government, so that your deposit is bumped up to 25% of the property price.
There are other ways and means of raising the deposit, but this is just the first stage. Buying a property will require the services of a conveyancer to complete the process, and our handy First Time Buyer Conveyancing Calculator is the essential tool for choosing a rated and recommended conveyancer who is right for you.