First-Time Buyers: Government Launches ‘Your First Home’ Scheme But Is It Enough?

A new scheme is launching for first-time buyers to help more people onto the property ladder, the government has announced but will it help or hinder buyers? Here’s what we know so far.

‘Your First Home’ is an equity loan scheme available to first-time buyers in England looking to purchase a new-build property.

Those eligible for the scheme will get a government-backed loan worth 20% of the purchase price of the property.

Buyers will need to put down a minimum deposit of 2.5%.

To cover the rest of the purchase, buyers will need to take out a standard mortgage for 77.5% of the property’s value.

For example, the average price of a new build in England is £398,000 according to the Land Registry. That means a prospective buyer would need a deposit of £9,950.

They would be able to get an equity loan of £79,600 (20%) from the government and take out a mortgage for the remaining £308,405.

The equity loans will initially be interest-free, which the government estimates could “save buyers hundreds of pounds a month” compared to standard 95% mortgages.

Who will benefit from the scheme?

The biggest draw of the Your First Home scheme is that buyers only need to put down a house deposit of 2.5% of the property’s value.

This could help to reduce the challenge facing many first-time buyers of building up enough for a down payment while balancing covering essential costs like rent and household bills.

The government also says the scheme will set a household income cap with local property prices to ensure it’s only used by people who need it. Meaning it shouldn’t be exploited by those who can already afford to buy a home.

Exact details about how the cap will work and eligibility will be announced in the Chancellor’s Budget announcement on 28 October.

How does it compare to Help to Buy?

Help to Buy was a government equity loan scheme introduced by then-Chancellor George Osborne. There were several variations of the scheme before it eventually ended in March 2023.

The most recent version of Help to Buy allowed buyers to put down a 5% deposit on a new-build home with a value of up to £600,000, depending on which region the property was in.

The government then provided an equity loan of up to 20%. No interest was charged for the first 5 years. In the sixth year buyers had to pay 1.75% in interest.

The interest rate then increased every April by adding CPI inflation and 2%.

Since it was introduced, over 387,000 were bought through the scheme, including 328,000 first-time buyers.

Lesson for the future

Without sufficient attention, the Your First Home Scheme could repeat mistakes seen by its predecessor. For example, property price inflation and not addressing housing affordability in certain areas.

A report into the effectiveness of the Help to Buy scheme found that although it helped people into homeownership in some areas, it “did not remove affordability barriers for first-time buyers in areas that were already relatively expensive.”

It was also found to push up property prices and boost profits for housebuilders.

The government will also need to be clear about the interest rate terms that buyers will face.

Currently, students on Plan 2 loan repayments are facing soaring debt repayments due to unclear interest rate terms.