The Chancellor is to give all first time buyers up to £3,000 when they save towards their deposit into a Help to Buy Isa to buy a home.
George Osborne has announced a new scheme to help first time buyers build their savings for a deposit by adding £50 for every £200 saved to an Isa.
The Chancellor has said the purpose of the scheme is to tackle two of the biggest challenges for first time buyers, low interest rates on savings and the large deposits required from lenders to secure a mortgage.
The maximum amount you can contribute to the Help to Buy Isa is £12,000 and the government will add another £3,000 for each person.
How will the scheme work?
The scheme is available for properties valued up to £250,000 in the UK and up to £450,000 in London.
Applicants to the Help-to Buy Isa must be aged 16 and over and have never been a homeowner. The scheme is not available for buy-to-let investors or for second homes.
Existing home owners such as home movers and remortgage buyers do not qualify for the scheme and must rely on their own savings for future decisions about their property.
The maximum any one person can contribute is £12,000 and the government tops this up by another £3,000 to make a total of £15,000.
This means a couple will receive £6,000 towards a deposit of £30,000 between them to help buy their first home. According to the Council of Mortgage Lenders (CML) the median deposit for first time buyers is £22,500.
The minimum you need to start the Isa is £1,000 and the minimum amount the government will contribute is £400 which means you need to save £1,600 for a combined total of £2,000. The maximum you can save thereafter is £200 per month.
Can it help you buy a home?
The scheme will help people to save faster and possibly have a larger deposit and this would reduce the loan to value (LTV) which could also significantly lower the interest costs of the mortgage.
With a larger deposit of 20% or more you will receive very good mortgage rates and you will be offered the best rates with a 40% deposit.
The lenders would still have to check your ability to afford the mortgage repayments. This involves your level of income from employed or self-employed sources and your costs, in particular large regular outgoings, outstanding debts and child care costs.
Current plans intended the scheme to run for four years from the autumn of 2015 so you will need to start saving in your Isa within this time frame.
Once open, you can keep it going until you buy. You can also make withdrawals during this time and the government make their contribution at the time you buy your new home.
The Help to Buy Isa is expected cost the government £45 million in 2015-16 increasing to £835 million in 2019-20.
Help for first time buyers can come from family members as the equity release buyer can access wealth using a lifetime mortgage and give to a child or grandchild the deposit on their first home.
What are your next steps?
Call our LCM mortgage brokers for advice if you are a first time buyer, want to remortgage your existing home for the best mortgage deal, moving home or are a buy-to-let investor.
Learn more by using the property value tracker chart, mortgage cost calculator and equity release mortgage calculator. Start with a free mortgage quote or call us and we can take your details.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your property for home improvements, holidays or even buy a more expensive home.
Use your dashboard to access online mortgage quotes, money off vouchers and start your mortgage application online 24/7 on desktop, tablet or smartphone.
