First-time buyer schemes: how they work, plus the pros and cons
Telegraph Money helps you navigate the options available for help buying your first home
Did you use a scheme to get on the property ladder? Did it help, or was it a mistake? We want to hear from you, email money@telegraph.co.uk
For many first-time buyers it may feel as though it has never been harder to buy a home. Although mortgage rates have fallen slightly in the past year, affordability is still stretched by historic standards.
At the same time, house prices remain high relative to average earnings, with the first-time buyer house price to earnings ratio standing at 5.0 at the end of 2024 – far above the long-running 3.9 average, according to Nationwide.
However, lenders are keen to help buyers on the housing ladder and governments, regardless of who is in power, seek to boost home ownership.
So if you are looking at taking the leap to buy, what are your options? Telegraph Money takes a look at the market and talks you through the most popular schemes available for first-time buyers.
- First home scheme
- Shared ownership
- Zero deposit mortgage
- Joint or shared mortgage
- Mortgage guarantee scheme
- Lender-specific products
Government schemes
Successive administrations have tried to appeal to younger voters with policies and schemes to make it easier to get on the housing ladder.
However, they are not without criticism. The flagship Help to Buy scheme that ran for 10 years from 2013 to 2023 was used by thousands to buy their first home, but faced a backlash. Critics suggested it artificially inflated house prices and many who used it were eventually forced to sell at a loss.
However, other government-backed schemes still exist for first-time buyers to take advantage of.
First home scheme
What is it?
If you are looking to buy your first home, you may be able to buy a property with a 30pc to 50pc discount on its market value using this scheme.
It is available on new builds or pre-owned homes that were bought through the scheme up to a value of £250,000 (or more than £420,000 if the property is in London) after the discount has been applied. However, when the property is sold the discount is passed on to the next buyer but you will still benefit from any value increase while you own it.
For example, if the property is worth £200,000 you get it with a 30pc discount for £140,000. It gains 10pc in value during your ownership to £220,000 but when you sell it on you receive £154,000.
Who can use it?
You must be a first-time buyer with an income of under £80,000 – or £90,000 in London – before tax. If you are buying with others, your joint income must not be more than the threshold and you must all be first-time buyers.
You must also have a local connection to the area, whether you grew up there or live there now.
Local councils may also put in qualifiers to prioritise housing for key workers in the area, local residents and those on lower incomes.
How do you apply?
There is currently no centralised portal so you will need to do your own research and get in touch with developers in your area offering the scheme, or estate agents advertising eligible properties.
Shared ownership
What is it?
Shared ownership allows you to buy a share of a property – usually 25pc to 75pc – and pay rent to a housing association on the remaining portion, which is usually at a discounted rate. It reduces the deposit you need in order to get on the housing ladder as you only need a lump sum as a proportion of the share you are buying rather than the full property value. By taking this option, you are paying a mortgage and rent.
Who can use it?
To be eligible, you have to be a first-time buyer or a previous owner but now priced out of the market. You need to be over 18 and show that you are not in rent or mortgage arrears with an income of under £80,000 before tax (£90,000 for London).
How does it work?
Once you own the portion of the property you then pay rent on the remainder, usually to the developer which is often a housing association. You can increase your ownership through a process called “staircasing”. However, there are additional fees. As most properties are purchased under leasehold, those who buy through shared ownership will need to pay service charges on top of their rent and mortgage payments.
Is it a good idea?
Shared ownership has come under attack in recent years for a range of reasons, especially the mounting costs it may involve such as legal fees and the possibility of ground rent and service charges. It can also be harder to sell a shared ownership property and trickier to get a mortgage to make your initial purchase.
However, it is seen by many as a more secure form of renting and can be a useful first step on the property ladder.
Zero deposit mortgage
What is it?
Zero deposit mortgages allow buyers to borrow the entire value of a property without providing any deposit.
Traditional home loans require you to put down a deposit of at least 5pc, which can be a struggle for first-time buyers, who are often faced with trying to save thousands of pounds while paying high rental prices.
Unlike the years before the financial crisis, when lenders would provide risky mortgages worth 100pc or more, these days there is tighter regulation and so-called affordability checks on borrowers.
How does it work?
The latest version of no-deposit products currently on the market are from Skipton Building Society and Yorkshire Building Society.
Skipton Building Society offers its Track Record mortgage exclusively to first-time buyers who are currently renting. An applicant’s record of paying rent is used as evidence that they can afford monthly mortgage repayments.
No deposit is required to secure the mortgage. Borrowers just need a good credit score, evidence of their income and proof that they have paid rent on time for 12 months.
The Yorkshire Building Society mortgage deal requires first-time buyers to put down a minimum of just £5,000. The £5,000 Deposit Mortgage provides home loans on purchases worth up to £500,000, effectively a 99pc loan.
Who can use it?
First-time buyers with a good credit score can apply. For Yorkshire Building Society’s mortgage you will also need a small deposit. A no-deposit mortgage may be a good choice if you are struggling to generate a big deposit and have a property you are keen to buy that is in your budget. It means you don’t have to save as much toward a deposit and can therefore get on the property ladder quicker.
But it may limit your choice of the type of property you can purchase, and the monthly repayments are likely to be higher than if you save for a bit longer and build a larger deposit.
Nicholas Mendes of broker John Charcol said: “Allowing buyers to secure a property worth up to £500,000 with just a £5,000 deposit is a practical solution to one of the biggest hurdles facing aspiring homeowners.
“Accord has recently announced that this product will now include flats, which makes perfect sense, especially in cities like London, the South East, and parts of Scotland, where flats are often the most realistic option due to higher property prices. This move will undoubtedly open up more opportunities for buyers in urban areas.”
Is it a good idea?
While zero deposit mortgages can be helpful for first-time buyers, they are not without significant risks. If house prices drop then you are at risk of falling into negative equity, where the value of your home is less than the size of your mortgage.
While zero-deposit mortgages might save you money initially, you need to consider that your monthly repayments are likely to cost more as rates on loans with low deposits are typically higher.
Joint or shared mortgage
What is it?
Most first-time buyers will purchase their property with someone else, increasing the deposit they can save and the income that can be used to secure a mortgage. Most lenders will allow up to four people to take out a home loan together.
While people traditionally think of buying a home with a partner, tighter financial conditions mean more are buying with siblings or friends to get their foot on the ladder. In fact, half of first-time buyers would consider “non-traditional routes” such as buying with friends or siblings, according to research from Lloyds Bank.
Who can use it?
As with any mortgage, all the names on the loan will have to meet the lender’s criteria, including a good credit score. They are also not just for first-time buyers
The other people on the mortgage do not necessarily have to live in the property. Lender Gen H’s “income booster loan” allows a relative or friend on the mortgage to boost the income and deposit but how you divide the repayment is up to you. The income booster can be removed once you can pay the mortgage yourself. It also doesn’t impact your first-time buyer status for preferential stamp duty.
You can also get a joint borrower sole proprietor mortgage. It allows up to four people to be named on the mortgage, with only one (or two) being the property’s sole proprietor and named on the deeds.
It can be an alternative solution for parents who want to help their children get on the property ladder without parting with a cash lump sum.
Is it the same as a guarantor mortgage?
No, a guarantor mortgage is different from one with multiple names on the loan.
A guarantor mortgage is when a parent or guardian assumes some of the risk of a mortgage, usually committing to making payments if the mortgage holder cannot.
For this they need private security, such as their own property, against which the loan is guaranteed. They will need to go through their own credit checks.
Lenders including Nationwide and NatWest offer these loans, which can be a good option if you have a bad credit score or can’t raise a big enough deposit. This way the lender has extra protection in the event of default on mortgage repayments.
Mortgage guarantee scheme
What is it?
The mortgage guarantee scheme encourages lenders to offer mortgages to first-time buyers with a 5pc deposit because it is guaranteed by the Government. It is available for loans on properties up to £600,000.
However, some lenders may set a lower threshold. For example, Barclays will lend up to £570,000 for a house or up to £275,000 for a flat.
It has boosted the supply of 95pc loan-to-value mortgages by 5pc, according to government statistics.
Who can use it?
While aimed at improving rates of home ownership, the scheme is available to movers as well as first-time buyers as long as the property is being bought to live in and not rented out.
You cannot apply for a mortgage directly via the scheme but instead compare 5pc deposit mortgages to get the best rates.
Lender-specific products
In addition to market-wide products, lenders also offer their own products to target first-time buyers.
1. Barclays ‘Springboard mortgage’
The Springboard mortgage helps boost a buyer’s deposit if they don’t necessarily need a boost to income but are struggling to save a lump sum.
It lets family members place 10pc of the property’s value into a secure “Helpful Start” savings account as collateral, which earns interest over time and is then returned after five years.
It also allows buyers to borrow up to 100pc of the property value.
Chris Sykes of broker private finance said: “There are specialist building societies that offer similar products. However, they have little uptake as being loaned or given a deposit from family members is often better.”
2. Nationwide Helping Hand mortgage
The Nationwide Helping Hand Mortgage allows borrowers to access up to 6 times their income, a significant jump from the standard 4.5 times, provided at least one applicant is taking out a five-year fixed-rate deal.
For example, a couple who are eligible first-time buyers have a joint income of £55,000, a 5pc deposit, and no other costs impacting how much they can afford. With a Helping Hand, they may be able to borrow up to £330,000. This is compared to the £247,500 they’d be able to borrow without one.
Mr Mendes added: “The long-term fixed rate provides peace of mind against interest rate fluctuations, while the increased borrowing limit helps buyers maximise their budget.
This mortgage is particularly beneficial for young professionals or dual-income households looking to make the most of their earnings and step onto the property ladder sooner than they might have thought possible.”
3. Gen H Build Boost mortgage
First-time buyer-focused lender Gen H has launched a “Build Boost” mortgage.
The buyer brings a minimum 5pc deposit and takes out an 80pc loan-to-value mortgage.
Gen H closes the gap between the mortgage and deposit with a 15pc interest-free boost supported by the house builder, similar to the operation of the old Help to Buy scheme.
However, similarly to Help to Buy, the value of the equity loan goes up or down depending on changes in house prices and is only interest-free for the five-year term.
We want to hear about your experience of using these schemes, email us at money@telegraph.co.uk