Assistance available for first time buyers

Posted on August 1, 2018

The thought of buying your first property can be both an exciting and daunting prospect. Luckily there is a range of options available to aid first time buyers wanting to get their foot on the property ladder. A first-time buyer is defined as an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence.

Your options

Whether it’s a Help to Buy ISA, Help to Buy Equity loan, or a Lifetime ISA, there’s enough choice in the market to find a financial option that suits you.

The financial crisis of 2008 led the way for ‘generation rent’. Since then, the government, banks, and building societies have responded to the needs of the market, helping the rate of first-time buyers rise by 75% since the crisis. In addition to government schemes, there are now thousands of mortgage options available to first-time buyers, and banks offer specific deals such as cashback, low fees, and contributions towards legal costs.

Help to buy ISA

Help to Buy ISAs are one of the more popular options for first-time buyers. The UK’s major banks all offer this ISA and savings are tax-free, along with a bonus from the government. You can save up to £12,000 and when you come to buy your first property you will receive an additional 25%.

Therefore, for every £200 you deposit, the government will contribute £50. This means that if you save the entire £12,000 for your deposit, the government will give you another £3,000, increasing your total deposit to £15,000. You can kick off your ISA with an initial £1,000, followed by £200 (or less) each month thereafter.

Help to Buy ISAs are for couples too. So, if you’re looking to purchase a home with your partner, you’ll be able to get up to £6,000 towards your deposit. These are the conditions:

You must be a first-time buyer; and
You must be aged 16 or over.
You can use it to buy any home worth under £250,000 (or under £450,000 in London)
You can use a Help to Buy ISA with any mortgage - you’re not restricted to a Help to Buy mortgage

Stamp Duty Exemption

From 22 November 2017 first time buyers (defined as an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence) planning to buy a residential property costing less than £300,000 in England or Northern Ireland, will not be required to pay Stamp Duty Land Tax (SDLT). Other scenarios where you can avoid SDLT:

The asking price - if the asking price of a property is only just within a higher band, ask the estate agent or private seller if they would accept a marginally lower offer.
Transfer of property in separation or divorce - if you’re divorcing or separating from your spouse or partner, there’s no SDLT to pay if you transfer a proportion of your home’s value to them.
Transfer of deeds - if you transfer the deeds of your home to someone else – either as a gift or in your will – they won’t have to pay Stamp Duty on the market value of the property.

Within the £300,000 to £500,000 band, you are obliged to pay SDLT at 5% on the price of the property that exceeds £300,000, a reduction of £5,000 compared to the amount of SDLT they would have previously paid. However, if the property’s purchase price exceeds £500,000 you will not be entitled to any SDLT relief.

Help to Buy – Equity Loan

The equity loan part of the Help to Buy scheme provides a more affordable opportunity for first-time buyers when it comes to new-build properties. With a deposit of at least 5% of the property’s value, the government will lend a supplementary 20%, creating a minimum total deposit of 25%. Bear in mind this only applies to new-builds costing less than £600,000.

You will not be charged interest on the government’s 20% of the loan for the first 5 years. In the 6^th year you will be charged 1.75% of the equity loan amount. After this you will be charged 1.75% plus inflation, along with a further 1%.

However, when you come to sell the property, it is important to remember that you have received an equity loan (rather than a sum of money). Therefore, you are required to pay the government 20% of the property’s current market value, irrespective of whether the price has risen or fallen.

Lifetime ISA

The final scheme that you may want to consider is the Lifetime ISA, which can also be used to buy your first home. You are required to be between the ages of 18 and 40 to open a Lifetime ISA. You can deposit a maximum of £4,000 annually until the age of 50, with the government offering a 25% bonus.

You’re able to use a Lifetime ISA to buy a property providing you adhere to these conditions:

The property costs £450,000 or less;
you buy the property at least 12 months after you open the Lifetime ISA;
you use a conveyancer or solicitor to act for you in the purchase - the ISA provider will pay the funds directly to them; and
you’re buying with a mortgage.

Contact

If you require assistance with property transactions or advice on the best actions for you to take regarding new purchases, contact Victoria Marshall on 0161 785 3500 at your earliest convenience.

Please note that the information and opinions contained in this article are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Pearson Solicitors and Financial Advisers Ltd or any of its members or employees. Professional legal advice should be obtained before taking, or refraining from taking, any action as a result of this article.

This blog was posted some time ago and its contents may now be out of date. For the latest legal position relating to these issues, get in touch with the author - or make an enquiry now.