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Expert tips on the 2023 mortgage market for low income buyers

by LLP Finance Reporter
22nd Feb 23 4:42 pm

According to a recent survey, half of first-time low-income homebuyers did not intend to use any government housing programmes to assist them in their purchase.

In order to answer any questions first-time buyers may have about available housing programmes, Money.co.uk mortgage experts have compiled all of the necessary information to help buyers choose the appropriate government housing programme.

Top things to consider with each government housing scheme

First Homes Scheme

First Homes is a government scheme that offers homes at a 30-50% discount off the market value to assist first-time buyers in getting on the housing ladder.

Pros  Cons
  • Offers first-time buyers the chance to purchase a home at a substantial discount from the market value (30–50%)
  • First-time purchasers over 18 with household incomes under £80,000 (£90,000 in Greater London) are eligible
  • Local councils may have additional eligibility criteria, such as essential workers or those who live in the area
  • The home must be a new build or one that was originally bought as part of the scheme
  • ​​It’s only currently available in England

Shared Ownership

The shared ownership programme enables people who don’t have the money to purchase a home entirely to purchase a share in one instead.

You can start with as little as 10% and as much as 75% of the property and gradually expand your ownership to eventually own it 100%. You lease the remaining portion from a housing organisation.

Pros  Cons 
  • Enables those who can’t get a loan big enough to buy a house outright to obtain a share in one instead
  • You can increase your equity share in the property through “staircasing” which allows you to buy more of the property in lumps as small as 1%
  • Some terms restrict you from owning the property 100% so check with a broker if this is your goal
  • You may be at risk of eviction if you fail to pay your mortgage, rent or service charges
  • There are different rules on Shared Ownership in Scotland, Wales and Northern Ireland so make sure to do your research

Mortgage Guarantee Scheme

Available until the end of this year, the Mortgage Guarantee Scheme is a government initiative to make 95% loan-to-value (LTV)  mortgage products more widely available. This is to allow more first-time buyers to get on the property ladder with just a 5% deposit.

Pros  Cons
  • Only need a 5% deposit
  • Lenders must provide customers with at least one five-year fixed-rate package
  • Higher LTV products generally have higher interest rates
  • Buying with just a 5% deposit mean there’s a higher risk of going into negative equity than with a larger deposit

Deposit Unlock Scheme

In 2022, the Home Builders Federation launched the first non-government led home ownership scheme. The Deposit Unlock scheme allows anyone (not just first-time buyers), to buy a new build home with just a 5% deposit.

Pros  Cons 
  • Allows anyone (not just first-time buyers) to use a 5% deposit to buy a new build home
  • Anticipated to become a lot more popular after the mortgage guarantee scheme comes to an end
  • Limited choice of properties
  • As a relatively new scheme, there are a limited number of lenders who are participating in this scheme

Right to Buy and Right to Acquire

Right to Buy provides council renters in England with a sizable discount to assist them in purchasing their rental property. Depending on how long you’ve been a tenant and the type and location of the property, the amount of the discount is calculated as the current market value of your home, minus 37% to 70%.

While the obvious advantage of this scheme is the hefty discount on the house price, this disadvantage is you would need to be a council tenant for at least three years to acquire the property.

The Right to Acquire scheme is extremely similar to Right to Buy. However, in England, it is only available to tenants of housing associations. Depending on the price of your rental home, the reduction granted ranges from £9,000 to £16,000. Like Right to Buy, you will need to be a housing association tenant for at least 3 years to apply for this scheme.

Money.co.uk mortgage expert, Claire Flynn has suggested the following tips for first-time buyers on low incomes, she said, “With mortgage rates much higher than they’ve been in recent years and the cost-of-living crisis affecting disposable income, this is certainly a challenging time for first-time buyers.

“Furthermore, our research of 2,000 first-time buyers reveals that half of those on low income are hesitant to use government housing schemes. However, assistance from one of the schemes available may be the best option for some would-be homeowners to get on the ladder.

“While the Help to Buy scheme stopped taking new applications in October 2022, other schemes such as the First Homes Scheme, Shared Ownership, and the Deposit Unlock Scheme might be good options for some first-time buyers to get on the property ladder.

“Which scheme is right for you will depend entirely on your individual circumstances, so it’s important to chat with a mortgage broker before you make a decision.”

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