Help for Those Purchasing a First Home

In this article, we look at the different sources of financial support available for first-time home buyers. This is useful reading for CII R01, R07, CF6, R06, and AF5 exam preparation.

This article is correct as at 14 May 2024.

First-time buyers

It’s notoriously hard to get onto the property ladder and as a result, a number of measures have been introduced by the current and previous governments to support first-time buyers, the most current of which include:

• Shared ownership;
• The First Homes scheme;
• Stamp Duty relief; and
• The Lifetime ISA.

We’ll look at each of these measures in turn.

Shared ownership

Shared ownership is operated at a local level by housing associations. Each participant owns (or, more typically, takes a mortgage out on) a percentage share – usually between 25% and 75% – in a property, and the rest is owned by the housing association for which the buyer pays rent.

Staircasing is the term used to describe the fact that buyers can increase their share of ownership up to 100%. When the buyer’s share increases, they will pay less rent.

If buyers want to move, they can sell, and any new buyer buys into the property at the existing arrangement.

The ‘Right to Shared Ownership’ scheme, allows eligible tenants (those who have been in social housing for three years, whose property was built under the Affordable Homes Programme 2021-26, and they have lived in it for a year) to buy a share of their rented home on shared ownership terms. 

First Homes Scheme

The First Homes Scheme is an affordable housing scheme available to first-time buyers with annual household incomes of no more than £80,000, or £90,000 if they live in London, in the tax year before they make their purchase.

Buyers must have a mortgage or home purchase plan agreed for at least 50% of the discounted purchase price. The discount is worth between 30 and 50% off the price of a local property. However, the discount will also apply when they sell, which means they can only sell the property to other first-time buyers.

A post-discount property price cap of £250,000 is in place in most of England, with a higher cap of £420,000 applying in London.

Stamp Duty Land Tax (SDLT) relief

First-time buyers, including those buying via a qualifying shared ownership arrangement, are eligible for SDLT relief.

No SDLT is payable on the first £425,000 of a property’s purchase price, providing the total purchase price is less than £625,000. No relief is available where the property’s purchase price exceeds £625,000. Where the purchase price is more than £425,000 but is below £625,000, SDLT is charged at the usual 5% on that portion of the purchase price only.

For example, Alexa buys her first home in York for £500,000.

• She will pay 0% SDLT on the first £425,000; and
• 5% on £425,000 to £500,000;
• giving her SDLT due of £3,750 (£500,000 – £425,000 = £75,000 x 0.05). 

Lifetime ISA

Lifetime ISAs can be opened by those aged 18 or over, but under 40. For every £4,000 saved before the age of 50, the government adds a 25% bonus.

For example:

If £1,000 is saved into a Lifetime ISA, the government will add a bonus of £250.

The maximum government bonus per year is £1,000 (i.e. 25% of the £4,000 contribution limit).

If the money in a Lifetime ISA is withdrawn for any other reason than to fund the deposit required on the purchase of a first home before the age of 60, the saver will usually be charged a penalty of 25%. The penalty is charged on the savings and the bonus:

For example:

If a £250 bonus is added to £1,000 of savings, but the funds are then withdrawn to cover an emergency (for example), the penalty will be £1,000 + £250 = £1,250 x 25% = £312.50.

This example emphasises the importance of being sure an individual can afford to save into their Lifetime ISA and won’t need early access to their funds. Of the £1,000 initially invested, they will only receive £937.50 after the penalty.

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