Specialist Lending - February 2017  

Options for first-time buyers in 2017

  • To assess the different types of first-time buyer schemes.
  • To understand which ones might be best for self-employed clients.
  • To ascertain how to best support self-employed borrowers.
Options for first-time buyers in 2017

Rising house prices and tough affordability criteria can make it tough for borrowers getting on the property ladder.

Self-employed borrowers face an even harder climb as lenders are imposing strict rules for everyone on assessing affordability and what counts as income.

This particularly hits the self-employed due to the different ways they earn money through salary and dividends.

But government schemes such as Help to Buy are helping first-timers, both in full time work and self-employed, make their first steps and many lenders are following suit with low deposit high loan-to-value home loans on the wider mortgage market.

All lenders will consider self-employed first-time buyers, according to Moneyfacts, but the rules differ.

According to Moneyfacts, 11 per cent of lenders want a minimum of one year trading history, 48 per cent ask for two years, 27 per cent want three years and 13 per cent say refer to lender

So what is on the market to help your first-time buyer clients?

Help to Buy

The Help to Buy scheme is the umbrella name given to the government’s attempts to help people own their own home.

Up until last year there was a Help to Buy Mortgage Guarantee that provided government support for 95 per cent LTV mortgages. 

Now there is a Help to Buy ISA, closing on 30 November 2019, that lets first-time buyers save for a deposit tax-free. 

But the main mortgage-related initiative under Help to Buy was launched in 2013. Called the Help to Buy Equity scheme, it provides a government loan of up to 20 per cent to first-time buyers and existing home buyers in England that is then boosted by their own 5 per cent deposit. 

In effect, they then have a 25 per cent deposit to put forward to a lender participating in the scheme.The Help to Buy Equity Loan scheme is only available on new-build properties worth up to £600,000. 

Clients would need to find a development near where they want to live and a lender participating in the scheme. Borrowers have to pay back both the mortgage and the government equity loan.

After five years the government equity loan becomes subject to an annual fee of 1.75 per cent of the remaining amount. This charge increases by the Retail Price Index inflation plus 1 per cent each year.

If a buyer uses this scheme, when they come to sell, or after 25 years, the government required the loan to be paid back. There is also a London version that offers equity loans of up to 40 per cent of the purchase price. This scheme is due to close in 2021.

First-time buyers in Scotland can access a Help to Buy scheme offering a loan of up to 15 per cent plus their own 5 per cent deposit on a new-build.