If you want to buy your first house as a key worker it can be a challenge. Luckily there is help out there if you know where to look.
Key workers form an essential part of our communities, often their pay is capped at a national or regional level making saving difficult and house prices seem out of reach. Coupled with working shifts finding time to research buying a home can be difficult.
In this article, we give a basic overview of the 4 government schemes with helpful links to read more.
Always remember, if you are unsure about the schemes or your current situation the best thing to do is to speak to a mortgage adviser or a professional from one of the schemes that can help you figure out what’s best for your situation.
The 3 main government schemes to help you buy sooner:
1. Lifetime ISA. A savings scheme with a cash bonus from the government
What is the Lifetime ISA?
A Lifetime ISA is a special type of savings account designed to help you either save for buying your first house, for retirement or both. What is great about it, is the government will add money to your account as you add savings helping you potentially reach your saving goal quicker.
Why was the Lifetime ISA created?
As a key worker saving can be hard. Often having to pay expensive rents or travel costs, making it tough to put money aside.
The government has recognised that saving for a deposit and your future is important so wants to incentivise you to save regularly. With high house prices in some areas, finding even a 5% deposit can mean saving a large amount of money.
Having a larger deposit has a number of advantages.
A larger deposit will potentially increase the number of mortgage deals available to you and with potentially better interest rates. It will also help lower the amount you need to borrow from a lender.
Both of these factors help to reduce your monthly mortgage payments once you own the house, and the total amount paid over the lifetime of the mortgage, so it is worth saving if you can.
What should I know about a Lifetime ISA?
A few interesting things about the Lifetime ISA:
- You can save up to £4,000 per year in it and the government will add a 25% bonus on top. That’s a potential of an extra £1,000 per year you could earn on your savings. So for example even if you save £500 the government will add £125 to your account.
- Once the bonus is paid you start to earn interest on it. Meaning you will receive extra money thanks to earning interest on the larger amount.
- Some Lifetime ISA accounts pay higher interest than your typical high street easy access savings account and savings are tax-free.
- They are only available for people aged between 18 and 39
- Couples can have one account each.
A couple of things to be aware of:
- You have to have opened your LISA at least a year before you want to use it to buy a house. So this can’t be used if you plan to buy sooner.
- If you need to take your money out early for any other reason there are penalties, which means you would get less out than you originally put in
What schemes are there if I can’t afford house prices in my area?
Often house prices in areas closest to the best schools, hospitals and popular town centre areas are more expensive.
Lenders will look at the ratio of your income to the mortgage you need. This can mean for some key workers they can’t borrow the amount they require to buy where they want to.
That’s where the following two schemes come in:
2. Help to Buy Equity Loan Scheme
The help to buy scheme has been used by thousands of people to buy their first homes. If as a key worker your income is restricting what you can buy then this may be a scheme to help you.
One potential drawback is it’s only available on new build properties, which often come at a premium price.
How does it work?
The scheme essentially gives you a way of getting an extra 20% loan towards the house you want to buy or 40% if you are in London. So for example, if you only had a 5% deposit, you would have the 20% equity loan leaving only a 75% mortgage instead of a 95% one.
In real terms, this could be the difference between you buying or not. And for other people the difference between getting a family home suitable for the long term or a smaller two-bed property that you are likely to outgrow.
To find out more about the scheme including and how it works, check out our in-depth article on Help to Buy. Also, check out our Pros and Cons of help to buy to help you decide if this is the right scheme for you.
3. Shared Ownership
This scheme is designed for people on lower incomes or who are struggling to save enough for a deposit but still want the benefits of calling a place home.
Shared Ownership is a part buy/part rent scheme.
You buy a share of the property and pay rent at a reduced rate on the share that you don’t own. In many cases, this lowers your overall monthly outgoings.
How does shared ownership work?
You can buy between 25% and 75% of the property and have the option to increase your share of the property in the future.
One of the big benefits is you can buy with a smaller deposit. For example, if the house was £200,000 a 5% deposit would normally be £10,000. However, with Shared Ownership if you purchased a 30% share at £60,000, and were to put down a 5% deposit this would be £3,000. Which is much lower than the £10,000 deposit required for 5% of the full house price.
What else should I know about shared ownership?
There are some restrictions to what you can do in the property, which must be taken into consideration. Also in some areas, there is a lack of availability of these homes, making it harder to find one where you want to live.
For more information we recommended you check out our detailed article on Shared Ownership. Also, to help you work out if this scheme is right for you, make sure you read about the Pros and Cons of shared ownership.
4. First Homes
The First Homes scheme offers a realistic and affordable route into homeownership for local first-time buyers.
Designed specifically to help key workers and young people get on the property ladder, homes are offered at a minimum discount of 30% on the market price.
Eligible buyers must have a local connection and an annual household income below £80,000 in England and £90,000 in London. Find out more here.
5. A bonus for you – Specialist Mortgage Lenders
We said we’d give you 4 but there is a fifth way to help you buy that is reserved for Key workers, which is to use a specialist lender. There are mortgages lenders out there who can help you borrow more than you would be able to get from a high street lender because they recognise that as a key worker you have a unique set of circumstances and are likely to be in the area for a long time. Other lenders focus on providing you ways to get help from your family towards the deposit. Typically the best place to understand these schemes is through a mortgage adviser who deals with them regularly.
So now you know of 4 schemes that could potentially help you buy a house sooner than you thought.
Often at first, these schemes can be confusing and it takes time to research. You may find it quicker and easier to chat with a mortgage adviser who can explain everything to you and help you work out your finances.
The initial chat is free and it could save you lots of time and money in the future.
Even if you are a little way off being ready to buy it may help you get the motivation you need to start saving.
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