Getting that first foot on the property ladder is a big milestone. And while there’s no denying that it’s harder than it used to be, if you do your research, there are lots of extra incentives and help for first-time buyers out there. The question is, do you qualify?
Let’s take a look at what it means to be a first-time buyer in the UK.
Who qualifies as a first time home buyer?
It’s there in the name, right? A first-time home buyer is someone who’s trying to buy a house or flat for the first time.
But if you ask the home-builders, the mortgage lenders, and the government, the definition of a first-time buyer is ever-so-slightly more nuanced.
As well as being someone who’s never gone through the home buying process before, a first-time buyer is someone who doesn’t have a residential property (i.e. a house or a flat) with their name on the title deed, which they could sell to pay for their new home.
You can be a first-time buyer no matter how old you are and no matter what your income is (although a higher income will exclude you from some of the help available for first-time buyers – more on that later). But the deposit you put down on the home has to be from savings, a gift, or your inheritance, and not from selling a property.
You won’t qualify as a first-time buyer if:
- You already own residential property: If you’ve already bought a house or flat anywhere in the world, you don’t count as a first-time buyer in the UK. It’s worth noting that if you’ve bought commercial property (like a shop unit, a restaurant, a garage, or a studio space), you’re still a first-time home buyer in the eyes of the UK housing market, as long as you couldn’t conceivably live in the commercial property you bought.
- You inherited a property: If a house or flat was left to you, you have something you could sell to pay for your new home, and so you’re not a first-time home buyer.
- Your family bought a house for you: If your family bought a place for you to live, you’re no longer a first-time buyer. You still qualify if you’re living in a property that’s owned by your family (as a renter, for example), but if the house or flat is technically yours, you’ve taken your first step on the property ladder already.
- You have a buy-to-let property or a home abroad: You can see where this is going, right? If you’re a landlord, you have a property that you could sell to pay for the home that you’re going to live in.
- You’re buying with someone who has already owned a residential property: This is the one that catches a lot of people out. If you’re buying a house with someone else and they’ve bought a house before, you won’t qualify for any help for first-time buyers. To be eligible, both of the people on the mortgage need to be able to say that they’ve never owned a house or flat before.
- You’re married to someone who owns a property. Unfortunately, once married, you automatically lose your first-time buyer status if your spouse owns a property already.
What are the benefits of being a first-time buyer?
It’s difficult for first-time buyers to get on the property ladder because they have to pay their home loan deposit from their savings alone, rather than using money from the sale of their current home.
When you consider that it’s normal to pay a 10% mortgage deposit, and the average house price was £268,349 in 2021, you might have to save up to £26,800 or more before you can think about buying a house. This can take years of hard work.
Because of this, there are a few different schemes in place to help first-time buyers pay for the house they need. These have different eligibility criteria, and different parts of the UK have their own rules, but let’s do a quick overview.
Stamp duty relief
The stamp duty land tax holiday that was in place for a lot of 2020/21 has now ended, but stamp duty relief is still an option for first-time buyers.
What is stamp duty? It’s a tax you pay to the government when you buy a house or flat. It’s a lump sum on top of the value of the property, which is due 14 days after completion (so two weeks after your new home becomes yours).
The rate you pay depends on how much the house is worth and whether or not you’ve bought property before. At the time of writing, first-time buyers in England and Northern Ireland don’t have to pay any stamp duty on properties worth less than £300,000 (for everyone else, the threshold is £125,000). The threshold for the equivalent tax is lower for first time buyers in Scotland (£175,000) and Wales (£180,000).
For properties worth between £300,001 and £500,000, first-time buyers will pay the standard 5% stamp duty, but it’s nice to know that you’ve had a head start. Stamp duty relief applies no matter whether you’re buying a new home or an existing one, as long as the property is worth less than £500,000.
As well as stamp duty relief, there’s additional help for people who want to buy new-build properties.
Help to Buy Equity loans
An equity loan means that, if you pay at least a 5% deposit, the government will let you borrow 20% of your new home’s value as an interest-free loan (or up to 40% if you’re buying in London). From the sixth year onwards, you’ll pay back the interest on the loan, and then pay off the full amount when you sell the property.
Shared ownership
In a shared ownership scheme, you buy part of the property, and a housing association buys the rest. You then pay your mortgage (which will be smaller and hopefully come with a lower interest rate) and some rent on the part of the house that isn’t yours.
Over time, you can buy more shares in the property until you get to 100%. This is known as ‘staircasing’.
However, if the housing market dips, you might find yourself in negative equity, meaning the share of property you own is no longer worth what you paid for it. Because of this, it’s always best to do your research and be careful when using an equity loan scheme.
To qualify, you need to:
- Be a first-time buyer
- Have a household income of less than £80,000 (or £90,000 if you live in London)
- Be able to pay a 5-10% deposit on your part of the property.
It’s also worth noting that Scotland prioritises shared ownership properties for people who would otherwise find it difficult to own their own homes. This includes applicants with disabilities, members of the armed forces, people over 60, and people on a low income.
Rent to buy tenancies
In a rent-to-buy tenancy, you sign up to live in a property and pay a reduced rate of rent for a fixed amount of time. As a guide, that offer might be a 20% discount for five years. At the end of the contract, you’re then expected to buy the property (or another property, if this one doesn’t work for you anymore) using the money you saved on the rent as your deposit.
Right to buy
If you have a public sector landlord (that is, you live in a house that’s owned by the local government) you can approach your landlord to say that you’re interested in becoming the owner of the house.
- You need to be a good tenant and keep up with your monthly payments
- You need to have been renting from the council for at least three years
- You’ll then need to use the house as your main residence
With Right to Buy, you’ll get a discount on what the home is worth (to reflect the fact that you’ve been paying rent). This starts at a 35% discount (50% for flats), and you then get an additional reduction of 1% (2% for flats) for every year you’ve lived there once you’ve been in the property for five years.
Just remember, this scheme is only available in England and Northern Ireland.
What should you do next if you do qualify as a first-time buyer?
If you qualify as a first-time buyer, it pays to do your research on exactly what help you qualify for and which first-time buyer mortgage might be right for you. And you can always ask one of our Habito mortgage advisors for help in mapping out your journey to buying your first home.
Another good place to start is with our free mortgage calculator. It’s always helpful to know just how much money you can afford to borrow before you start house hunting.
And whether you’re a first-time buyer or not, you can use Habito’s complete home-buying service to make your property purchase even easier!
