The term First-Term Buyer (FTB) is commonly used in property markets in UK, Ireland and around the world to refer to a prospective property buyer with no previously owned property of his own. Sellers find first time buyers highly desirable because FTBs do not need to first sell a property in order to purchase a new one, therefore no housing chain is required.
First-time buyers need to consider certain factors before making the commitment to purchase their first property. Some of the factors include: building insurance, survey costs, solicitors fees, how much mortgage they can afford if needed, and how much cash will be needed for stamp duty, initial furnishing and decorating, and valuation fees.
Home ownership is regarded as a natural step in the life cycle and natural form of property tenure in the United Kingdom. Almost half of all mortgages taken out in the 1980s were recorded under first-time buyers in the UK. However, this percentage has declined recently to only around 15%. FTBs purchasing property has declined a lot more, as the ever increasing house prices has served to price them out of the market.
In July 2007, UK Housing Minister announced the Homebuy Shared Equity scheme of the government would be broadened to help buyers. There has been a returned momentum in the pace of first-time buyers since then, with first-time buying becoming the most common of consumer enquiries for most local, entire market mortgage advisers.
The UK government in 2016 launched the Help to Buy ISA for first time buyers by providing incentives for them to make use of savings to fund a deposit on a house. The savings are then boosted by 25% up to a maximum of £3000.
This scheme provides assistance to first time buyers who can only afford a 5% deposit. Even though the scheme is not limited to first time buyers alone, most of the applicants to Help to Buy fall into this category. The scheme, launched in 2013 came in two parts: Equity Loan and Mortgage Guarantee. The second part of Help to Buy, i.e. Mortgage Guarantee became obsolete by the end of 2016.
A minimum of 5% deposit of the property value is required, and the government offers an interest-free loan of an additional 20%. Standard mortgage is left to cover the remaining 75%. With Equity Loans, rates are cheaper because only 75% is borrowed from the mortgage lender, instead of 95% without the government’s loan. Help to Buy Equity Loan is available until 2020 and is only available on newly built properties in the UK worth no more than £600,000.
This scheme enables council tenants who have at least three years consecutive tenancy to purchase their home at a high discount. Currently, maximum discounts stand at £78,600 in England or £104,900 for residents in London. The discounts increase at the beginning of each tax year according to the CPI measure of inflation.
Help to Buy ISA was launched in December 2015, and was designed to support and elevate the savings of first time buyers. The government adds £50 for every £200 saved into the account. However, the bonus is not paid directly onto the savers account, but the tax-free lump sum is then paid directly to the mortgage lender at completion. Banks and other building societies offer their own Help to Buy ISAs with varying interest rates. In addition, certain accounts include a bonus upfront which eventually falls off after an initial honeymoon phase.
With lifetime ISA, first time buyers enjoy a tax-free boost of about £1000 annually towards the purchase of a new home or to save for retirement. Savers who are 40 years or younger can open one of such accounts and stash away up to £4000 yearly. The government will then add 25p for every £1 saved, paying the bonus directly into the account. First time buyers can use Lifetime ISA as a deposit on a property worth up to £450,000 in any location in the UK. Transfer of Help to Buy ISA balance to Lifetime ISA can be done without any loss to tax-free benefits.
With Shared Ownership, first time buyers can buy a 25% – 75% share of a home from their local Housing Association, and pay an affordable rent on the remaining part of the property. Shared Ownership is not restricted to first time buyers alone. Eligible participants for the shared Ownership scheme need to have a maximum household income of £80,000 or £90,000 for potential participants interested in buying a home in London. Shared Ownership scheme is available on both newly built and resale properties.
The Starter Homes scheme was launched in March 2015 and the housing minister, Gavin Barwell affirmed that the first starter homes would begin to be constructed in 2017, and by 2018, first completions will be ready for purchase. First-time Buyers, i.e. persons who do not currently or previously own a home, between the ages of 23 and 40 will have access to the starter homes.
A minimum discount of 20% of the market price of the new homes will be available to buyers for homes built under the scheme. The discount is possible because developers have the opportunity by the government to build on cheaper brownfield commercial land with tax waivers. Homes available under the scheme fall under a £250,000 price cap. The amount rises to £450,000 for FTBs buying in London. In addition, starter homes are prohibited from being put on sale or for rent at their open market value for at least five years after the initial sale.
First time buyers need a good credit score in addition to a decent deposit in order to get a good mortgage deal. For self-employed FTBs, a solid, definite proof of earnings is required to show a lender before a mortgage can be offered. Other factors need to be considered such as choosing between repayment or interest-only mortgage, and the pros and cons of different mortgage types.
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