Jasmine Birtles
Your money-making expert. Financial journalist, TV and radio personality.
Buy your own home with just a 5% deposit
Jennifer Coles
16th Aug 2011
If you’ve decided its time to buy your own home you will probably be wondering how on earth you will be able to save enough for a deposit, a new government scheme can help you now. The FirstBuy scheme can help you get a mortgage, with a low mortgage interest rate, with just a 5% deposit from you. Here’s how you get it.
- How the FirstBuy scheme works
- Who can apply for FirstBuy
- How to apply for FirstBuy
- Pros and cons of buying a new build property
- How to get a mortgage for first time buyers
- Improve your credit rating to get a cheaper mortgage
If you’re a first time home buyer you know how hard it is to get on the ladder. The charity PricedOut says the number of first time buyers has been falling each year for the past decade. It’s getting that all-important deposit together that’s stopping so many would-be buyers.
This is part of the reason why the government has brought in the FirstBuy scheme. It’s to help first time buyers and also give a boost to house-buiders which have been struggling in the recession.
How the FirstBuy scheme works
Essentially the scheme enables you to get a 75% mortgage (nice and cheap) even though you only put down a 5% deposit.
However, you have to go for a new-build flat or house to get the offer.
How it works is that:
- The government stumps up 10% off your deposit
- The housing developer stumps up 10% of your deposit
- You put in 5% (total = 25%)
- You go to the banks to ask for a mortgage of 75% of the value of the house. These mortgages are a lot more affordable – and available – than mortgages for 95% or even 90% LTV (Loan to Value).
- If you sell your home after five years, you’ll use part of the proceeds of the sale to repay the 20% that the government and the housing developers lent you.
So if you want to buy a house worth £110,000, you’ll only need a deposit of £4,400.
Extra benefit: This 20% loan does not have any interest rate attached to it. It’s more of an equity stake on the part of the government and the housebuilders. Sure, if house prices go up by 5%, and you borrowed £20,000 from the FirstBuy scheme, the government and housebuilders would get £21,000 back between them. But unlike a conventional loan, you won’t accrue interest.
Who can apply for FirstBuy
Any first time buyer(s) with a combined income of less than £60,000 can apply to this scheme.
You could be single, a couple or a family, but this must be your first home purchase and you must be buying a new-build property from one of the 100+ housebuilding companies that have signed up to the scheme.
How to apply for FirstBuy
Act fast!
The scheme is actually starting in September but you can register your interest now either on the government’s Help to buy site or through one of the housebuilders’ sites such as Barratt Homes.
If you’re interested in the scheme then I suggest you register now. It’s one of those things that has a limited amount of money and it’s first-come first-served.
The total amount that the government is putting into FirstBuy is £250 million, which is matched by housing developers to offer a total of £500 million. This could help 10,000 people to buy homes worth £200,000, yet there were 347,000 first time buyers in 2010. This means only around 1 in 35 people who are looking will get the chance to benefit from the scheme.
Here’s a video Jasmine made about the FirstBuy scheme and how you can get a home with it.
The FirstBuy scheme isn’t available in every part of the country. When we searched in the East Midlands, we found FirstBuy properties in Northamptonshire and Nottinghamshire, but none in Leicestershire, for example. To find out about other developers operating the FirstBuy scheme in your area, visit the government’s HomeBuy website here.
- Click on the map to select the area of the country you want to live in.
- Then fill in the search fields, making sure you select ‘FirstBuy’.
- This will bring up a list of properties in your area that can be bought using FirstBuy.
- If you see one you like the look of, look in the bottom right hand corner of the advert and you’ll see the name of the estate agent offering the property.
- Use Google to find a telephone number for this estate agent and give them a call to register your interest. They will talk you through everything you need to do to be ready when the scheme begins in September.
How to get a mortgage for first time buyers
The first place to get a mortgage for the first time is our mortgage comparison service. Just put your name and number in the quick form and you will be contacted by a real live person who will talk you through your options.
There have been reports that some mortgage companies are putting up the prices of their mortgages for the FirstBuy scheme because, they say, people accepted on this scheme are more risky. If you go through a broker, though, you will be offered a range of mortgages and will be able to choose the cheapest one for you.
You should also download our great FREE Friendly Mortgage Guide, for simple and easy to understand explanations and help with all things mortgages.
Check your credit rating now. You can get a Free Credit Check from Experian and start resolving any issues to improve your credit rating.
Pros and cons of buying a new-build property
You can only use the FirstBuy scheme to buy a newly built house, and while new houses are usually good quality, with double glazing and good insulation, not all housing companies have the highest standards. As the Channel 4 documentary The Secret Life of Buildings revealed recently, many British new build homes have the smallest room sizes and the smallest windows in Europe.
However, for a new family or a couple that is sick of paying high rents and really wants to get on the housing ladder, this scheme is better than nothing and worth going for even if you’re not a huge fan of new-builds.
But isn’t this just good for the house builders, you may ask?
Partly.
It’s clearly good for them because they get to sell more homes. However, it is also a genuine offer for first-time buyers. The government has been under pressure from home building companies in the last three years as they have been particularly hurt by the recession. It looks like this is an attempt by parliament to help two sections of the electorate at once: first time buyers and house-building companies.
Useful links
- Home Buy
- Direct Gov Information on FirstBuy
- How to get a mortgage for first-time buyers
- The free friendly mortgage guide
Can you please have someone to get in touch with me as I work for a local authority in the Southeast of London and I would very much like to take advantage of this scheme. I am presently renting and having to spend large sum of my monthly earning for rents.
I look forward to hearing from you.
Thanks
Ms Hulaimatu Connor