Help To Buy alternative options for First Time Buyers
The Help to Buy equity loan scheme helped more than 350,000 first-time buyers get on the property ladder. But the government hasn’t announced an official Help to Buy replacement.
So, what are the alternatives to Help to Buy for first time buyers?
The good news is, there are numerous Help to Buy alternatives to help you buy a home. Keep reading to find out what options are out there to help you get a place of your own.
What is Help to Buy?
The Help to Buy was a government scheme that helped first time buyers to buy their first home with just a 5% deposit. It worked by the government providing an equity loan equivalent to 20% of the purchase price (40% in London), which was interest-free for the first five years. This means as the buyer, you only had to put down a deposit equivalent to 5% of the purchase price, then get a mortgage to cover the remaining 75%.
When does Help to Buy end?
The Help to Buy scheme closed for new customers in October 2022, and ended for all customers on the 31st March 2023. If you haven’t already had an application approved, this means you won’t be eligible for the Help to Buy scheme as it is no longer available.
If you were accepted before the October deadline and you’re waiting for the developer to finish building your home, they’ll need to apply for an extension by the 28th April so you can still access a Help to Buy equity loan. Once the extension has been approved, you’ll have until the 31st March to complete the purchase.
Speak to your solicitor and developer to learn more.
Why has Help to Buy ended?
The government hasn’t explained exactly why the Help to Buy scheme is ending. There are no plans for the government to introduce any new schemes to replace Help to Buy either.
The scheme was introduced in 2013 to make it easier for people to buy new-build homes with a small deposit. Although many new-build homeowners are grateful for Help to Buy, the scheme has also come under scrutiny. A House of Lords report said it has caused house prices to rise by more than the loan was worth to buyers, meaning that it’s not always good value for money.
Since Help to Buy can only be used on new build properties, this can also cause problems. New builds can quickly lose their value, meaning that many first-time buyers are at a disadvantage when they’re ready to sell. If they sell the home for less than they bought it for, this can make it difficult to pay the government back.
What will replace help to buy in 2023?
Although the government has announced no plans to replace Help to Buy with a new scheme, there are plenty of private alternatives to Help to Buy including no deposit mortgages, guarantor mortgages and shared ownership schemes.
We’ve outlined the top 11 alternatives to Help to Buy below:
1. Deposit Unlock
Like the Help to Buy scheme, Deposit Unlock lets you buy a new build home with a 5% deposit. Most lenders typically require a deposit of 15-20% when lending on a new home because they’re concerned that the property’s value will fall once the borrower has moved in.
This is known as the ‘new build premium’ and it’s a bit like buying a new car. As soon as the keys are in your hand and you’ve taken it for a spin, it’s lost its newness — just one of the things that contributed towards its price in the first place.
But unlike new cars, the value of a new home usually recovers over time and they go on to appreciate in value just like other types of property. Nevertheless, this temporary fall in value can make it hard to find a lender who’ll let you buy a new build with a 5% deposit.
Enter: Deposit Unlock.
If you buy a home through the Deposit Unlock scheme, your house builder will insure the mortgage. This gives participating lenders the confidence to offer 95% mortgages because they won’t lose any money if the property needs to be sold for less than its original value.
2. Professional Mortgage
A professional mortgage also lets you borrow up to 5.5 or even 6 times your salary for a mortgage, plus the minimum deposit required is 5% if you’re purchasing a pre-owned property. This means not only could you boost your borrowing potential, you can also buy without needing a 10%, 15% or even 20% deposit saved up.
However, to be eligible for a professional mortgage, you’ll need to have a ‘professional’ job. What counts as professional varies from one lender to the next, but lenders tend to include doctors, nurses, vets, lawyers and accountants. If you do fit the bill, you’ll need to have qualified in the last ten years, be registered with the appropriate UK professional body and have a good credit score.
3. 5.5x Income Mortgage
Another way to boost what you can borrow for a mortgage is through a 5.5x Income Mortgage. If you earn over £37,000 as a solo applicant, or £55,000 as a couple you could qualify to borrow up to 5.5x your household income. Plus, this scheme has a minimum deposit requirement of 5% - so you can enhance your borrowing and get on the ladder with a small deposit saved up.
4. Armed Forces Help to Buy
If you’re in the British Army, Royal Navy, or Royal Air Force, you could boost your home buying budget with the help of an interest-free loan from the government.
The Armed Forces Help to Buy scheme lets you borrow 50% of your annual salary, up to a maximum of £25,000. You can put this money towards your house deposit, solicitor/estate agent fees or in some cases property renovations.
5. Deposit Boost
It can be hard to save a deposit while renting, so it’s no surprise that many renters believe home ownership is out of their reach. If you're struggling to save enough money for a deposit And you have a friend or family member willing to help you financially, a Deposit Boost might be right for you.
Let's imagine your Mum wants to help you buy a house but she doesn’t have thousands of pounds sitting in her bank account. It may be possible for her to remortgage her property so that some of the equity can be used for your deposit.
Unlike traditional guarantor mortgages, a Deposit Boost doesn’t connect the buyer to the Booster financially. This means that if you were to default on your mortgage payments, your Mum (or whoever it is that helps you) wouldn’t be legally expected to intervene.
That’s because a Deposit Boost requires two different mortgages. The remortgage to release equity and a separate mortgage on the buyer’s home.
6. Deposit Loan
Like a Deposit Boost, a Deposit Loan also lets you increase your down payment with the help of a loved one. But instead of them giving you the money as a gift, they give it in exchange for a share in your property.
There are two ways to do this:
- Your loved one gives you an equity loan and in return they own a percentage of your property
- Your loved one offers you an interest-free loan that’s repaid when the property is sold
You and the person lending you the money will be co-owners but you’ll each have an individual share of the property. The size of your share will depend on your deposit, monthly payments and any changes in the property’s value.
Find out which Help to Buy alternatives you’re eligible for
By creating a free Tembo plan, you’ll get a personalised recommendation of all the buying schemes you’re eligible for in a matter of seconds.
7. Income Boost
If you earn £30,000 a year, for example, and the bank is willing to multiply your income by 4, you could borrow up to £120,000. If you’ve got a £20,000 deposit, this gives you a total budget of £140,000. Depending on where you want to buy, that might not be enough.
This is where an Income Boost comes in useful. If your Dad earns £40,000 and is willing to act as your Booster, you can combine your incomes together to borrow more money.
So, if we take both your incomes (£70,000) and multiply that by 4, this gives us a mortgage of £280,000. Add your £20,000 deposit and you could buy a house worth £300,000.
If that’s still not enough to buy the house you want, you could potentially add another eligible Booster to the mortgage to enhance your borrowing.
Although your Boosters will be jointly responsible for the mortgage payments, they won’t own a share of the property itself. It’ll be all yours.
8. Dynamic Income Boost
Like a regular Income Boost, a Dynamic Income Boost lets you add some or all of a family member’s income to your mortgage application to increase your budget.
But in this case, your helper will get a share of your property and they’ll be able to increase their share over time by contributing towards your mortgage payments. This can be a great solution if you have family who are interested in investing in property, or want to help you get on the ladder but feel uneasy about gifting you money.
9. Dynamic Ownership
Dynamic Ownership lets you buy a property with up to five others and track your individual contributions through a home agreement. It’s ideal if you have friends or siblings who’d also like to buy a house and you’re happy to live together under one roof. By clubbing together with your pals, you can increase your mortgage affordability and buy a bigger or better home.
You won’t need to worry about who’s paying their fair share because each owner’s equity is separate and tracked. This means that when the property is sold, the amount you make from the sale will reflect how much you contributed to the deposit and mortgage payments.
Learn more: How much house can I afford?
10. Savings as Security
A Savings as Security or family springboard mortgage is another family-friendly alternative to Help to Buy. But instead of using their income or home to help you on the ladder, your helper uses their savings as a security instead.
Your family member will need to put a percentage of the property’s value into a designated savings account with the lender, usually 10%. The money will be used to offset the mortgage and, as long as you make the necessary repayments each month, they’ll get the money back after an agreed time frame.
Your loved one’s savings will also earn interest while it’s in the savings account, so unless you default on your mortgage, your family member will get back what they put in plus any accrued interest.
11. Shared Ownership
Shared Ownership is a popular option for people who can’t afford the home they want. Rather than using a mortgage to buy the whole house, you buy a share of the property and pay rent on the rest. Usually, you’ll buy a share between 10-75% of the home’s full market value.
The remainder of the property will be owned by a housing association, local council or private provider. They’ll be classed as your ‘landlord’ and you’ll pay them rent each month. Over time, you can ‘staircase’ your way to full property ownership by purchasing more of the property.
On average, our customers boost their buying budget by £82,000
At Tembo, we specialise in helping first time buyers boost their buying budget so they can get on the ladder sooner. See which of these Help to Buy alternatives you’re eligible for and how much you could afford with each by creating a free Tembo plan.