Finding the money for a deposit can often be the biggest hurdle facing a first-time buyer. As house prices continue to rise, it is becoming increasingly more difficult to get on the property ladder. More and more young buyers are turning to funding such as help from family members and government Help-to-Buy schemes.
In the years following the recession, first-time buyers are finding it more and more difficult to receive a mortgage. As house prices rise, so does the amount of money required for a deposit. Most mortgages lenders require buyers to put down at least 10% of the property value, but there are additional costs the buyer has to cover such as legal costs, tax and of course those trips to Ikea to furnish the new pad.
Popular property website Rightmove’s most recent figures show that the average price paid by first-time buyers for a house of up to two bedrooms is currently £194,881, a record high. A 10% deposit at this price would require £19,488 whilst a 15% deposit would see first-time buyers having to contribute £29,232.
With a large funding gap needing filled, many first-time buyers are looking a lot closer to home for help. The Bank of Mum and Dad is now on a par with the 9th largest mortgage lender in the UK, according to a report published by the financial services firm Legal and General[1]. They estimate that parents will lend children over £6.5 billion in 2017, with the deposits being provided for over 298,000 mortgages.
However, for buyers who are not able to receive help from family members, there are government schemes available:
Help to Buy (Scotland)
In Scotland, the Help to Buy (Scotland) Affordable New Build Scheme can see the Scottish Government contribute up to 15% of the purchase price in the form of an equity stake. This scheme is only available on new build properties up to the value of £200,000. The equity stake is interest free and can be repaid at any time.
Low-cost Initiative for First Time Buyers (LIFT)
LIFT allows first-time buyers to seek financial assistance for purchases on the open market. It is again a shared equity scheme in which the government can contribute to the purchase price up to a maximum of 40%. The purchaser would still own their house outright, with the Scottish Government’s share being protected by a standard security over the property, that again be repaid at any time.
Help to Buy ISAs
Another initiative is the Help to Buy ISAs for first time buyers. These ISAs are an extremely appealing alternative to traditional savings accounts. The principle is simple; the Government will increase the amount you have saved in the ISA by 25%, up to a maximum bonus of £3,000. The maximum monthly contribution that can be made is £200. When it comes to purchasing a property, your solicitor applies for the bonus which will then be put towards the purchase price.
For any more information on purchasing property in Scotland, please do not hesitate to get in touch with our property team on 0131 226 9167.
[1] Legal and General Group Plc; 02 May 2017; http://www.legalandgeneralgroup.com/media-centre/press-releases/press-releases.asp?newsid=3086