Government Schemes to Help get a Mortgage Deposit
There are a number of schemes available from the UK government to help boost your deposit, read on to find out more.
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With the higher costs of living and economic uncertainty right now, saving enough for a deposit on a home can seem an impossible thing to do. Thankfully, the UK government has a number of schemes that can boost your deposit. This will make you more attractive to lenders, increasing your chances of mortgage approval and giving you a more competitive market to explore. This article shares exactly which schemes help with a mortgage deposit, who is eligible and how to apply.
What government help is available with mortgage deposits?
There are a number of government mortgage schemes available in the UK that’ll help when it comes to a deposit. After reading, if you think you’re eligible for multiple or even none at all, it’s worth discussing your options with an expert who can verify that.
Help to Buy: Equity Loan: There are a number of options that fall under the Help to Buy umbrella and the equity loan is one of them. It tops up a first-time buyer’s deposit for a new build property so that it totals 25% (40% if in London). So if you have 5% saved, the government will loan you 20% and if you have 15% saved it will give you 10%. You then pay back the loan without interest for the first five years before the rate increases to 1.75%.
Eligibility: First-time buyers purchasing a new build property from a registered Help to Buy builder. The property must be valued within regional property caps and cannot be rented out.
Help to Buy: ISA: This was a savings scheme designed to help first-time buyers increase their deposit. Whilst Help to Buy ISA accounts can no longer be opened, those who had them before 2019, can still expect the government to add an extra 25% of whatever is saved in that account once they purchase a property. The caveat is that the payment doesn’t come through until the sale has completed and the maximum amount given is £3,000. If buying a property with someone and each has their own account, the contribution from both can be combined to boost the deposit.
Eligibility: First-time buyers who have an existing Help to Buy ISA.
Shared Ownership: This scheme allows buyers to purchase between a 25% and 75% share of a property rather than the whole property, which means you’d need a much smaller deposit. While having at least 5% of the share as a deposit is usually a stipulation, some lenders accept no deposit at all. The applicant would then pay rent on the portion they don’t own and can increase the percentage of ownership over time.
Eligibility: Those earning under £80,000 (or £90,000 if based in London).
Government Starter Homes Scheme: Also known as the First Homes scheme, this takes between 30% and 50% off the price of a new build home as long as it is valued below £250,000 (outside of London). The discount size is dependent on the property’s location and is agreed with a developer. The reduced price lowers the deposit needed.
Eligibility: First-time buyers between the ages of 23 and 40.
Lifetime ISA: Similar to the Help to Buy ISA, this is a savings account that the government will supplement with 25% of whatever has been saved if used to buy a property.
Eligibility: Those aged 18 to 40.
Right to Buy: If you live in a property owned by your local council, this scheme allows you to buy that property at a reduced rate. The discount can be up to 70% but will depend on numerous factors including how long you’ve lived in the property, its type and its value. The discount lowers the size of deposit needed but it can also be used as the deposit itself.
Eligibility: A secure council tenant who has lived in a property owned by the public sector for over 3 years. This does not have to be 3 consecutive years.
Take a look at our calculator below to see how this may work out for you:
Right to Buy Calculator
Our Right to Buy calculator will tell you how must discount you're eligible for on the purchase price of your property.
Your Right to Buy discount percentage could be:
Your Right to Buy discount value could be:
The cost of your property after the Right to Buy discount could be:
Now that you've worked out how much discount you're eligible for and know the amount you need to buy your property, your next step should be to seek professional advice if you need a mortgage to foot the cost. We work with brokers who specialise in Right to Buy mortgages, and they're just an enquiry away.
For more information on each scheme and advice on which might be the best for you, contact a broker specialising in government schemes.
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Other factors affecting eligibility
While each scheme has its own eligibility criteria, there are some general factors that will be considered. These include:
- Your plans for the property: Planning to rent it out or use it as a second home? If that’s the case, a number of these schemes won’t work for you. That’s because they’re mainly designed to give low-income earners a helping hand onto the property ladder.
- The type of property: Many low deposit schemes are only available for the purchase of new build properties. If you’re opting to purchase an older home, talk to a broker about what options might be open to you instead.
- Your credit history: If you have bad credit, this may affect your eligibility for government support. And when it comes to lenders, they may in fact require a bigger deposit to reduce the risk your bad credit brings.
How to work out the amount of equity you’ll have
Use our calculator below to work out how much equity you’ll have if you’re using a government scheme. Add any extra equity you’ll get through a government scheme to the deposit amount to find out what your ratio will be.
This calculator will tell you what your loan-to-value (LTV) ratio is, based on the property's value, your deposit/equity and the amount you're borrowing.
Your LTV is
This means that most mortgage providers will consider your deposit amount to be more than satisfactory, but speaking to a broker is still recommended to ensure you get the best deal.
This means you’re likely to meet the deposit requirements at most lenders, but since many reserve their best rates for those with higher deposits, speaking to a broker is recommended.
Many mainstream mortgage providers would consider this high and be reluctant to lend. Applying through a mortgage broker may be necessary to find a specialist low deposit mortgage lender.
LTVs have a direct impact on the rates available to you - speak to a mortgage broker and find out how to get the best deal based on your ratio.
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How to apply for a government deposit scheme
If you think you qualify for deposit support from the government you should:
Talk to an expert experienced in government schemes.
A mortgage broker will be able to verify whether or not you’re eligible for a scheme and, if there’s multiple, they can work with you to decide on which one might be best given your circumstances. This will save you a lot of time you might otherwise spend on researching each scheme and filling out the corresponding forms.
Apply for the scheme.
You need to know prior to applying for your mortgage whether or not you’ve been approved for the scheme you have in mind. That’s because it will determine your deposit size and this is something a lender will consider when deciding how much they’re willing to let you borrow. A broker would be able to talk you through the process and paperwork required, depending on which scheme you opt for.
Submit an application to the right lender.
Not all lenders accept or are compatible with various schemes. That means you should know, before you submit an application, that the lender will accept an application in conjunction with the scheme. Partnering with a broker means they’ll have the answers for you and be able to take that advice one step further by doing an assessment of the whole lending market to see which lender is offering the best deals for your government scheme right now.
Which mortgage lenders can help?
Not all lenders offer mortgages to borrowers who are supplementing their deposit with support from the government. Needing help with deposit for a house signals a level of risk they might be uncomfortable with. Thankfully, there are plenty of lenders who do approve of mortgage deposit loan schemes.
Most high street ones, including Lloyds, Santander, Barclays, HSBC, NatWest and Virgin Money will all accept applicants that are part of the Starter Home scheme. While others such as Bank of Ireland, Pepper Money and Accord Mortgages are open to Help to Buy applicants too.
There’s also a range of specialist lenders you may not have heard of but that offer competitive rates in conjunction with various deposit schemes. Oftentimes they only work with brokers and so the only way to ensure you’re getting the best deal is to ask a broker for their guidance.
Alternatives to government deposit schemes
If you don’t qualify for any of the government help for a deposit, there are other options you could explore.
Developer gifted deposits: Getting a discount on a new build property from a developer is quite a common incentive and can then be used in place of deposit. Alternatively, a developer might offer to match the deposit you put down, doubling your down payment. It’s best to talk each of these options through with a broker though as some lenders view these arrangements less favourably.
Bank schemes: “Lend a Hand” and the “Family Springboard” scheme are two initiatives certain mortgage providers have launched as a way of further supporting potential homeowners who lack that upfront investment. Both enable family members to contribute to the purchase by putting their savings into a certain account for a period of at least three years. The buyer themselves is usually required to have at least 5% saved and the family member’s savings are only secure if repayments are met.
Guarantor mortgage: This is where a willing friend or relative offers up their savings or property as a deposit instead. This generous person would need to either own a property themselves or be able to prove that they have enough capital to afford this. Lenders have their own strict criteria as to who can qualify as a guarantor so it’s worth running your potential guarantor by a broker first.
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Get matched with a broker to maximise your deposit potential
Which government mortgage deposit scheme is right for you and how do you boost your chances of getting accepted first with the scheme and then with a lender? With expert help. A number of the brokers we work with have that expertise when it comes to the various deposit assistance initiatives and will be able to quickly tell you whether you qualify and how to apply.
This will save you from applying to the wrong type of scheme, missing out on potential cost-savings and prevent a potential rejection. From initial research until the day of completion, brokers can be your one-stop shop for all things home-buyer related.
Start your journey with a free, no-obligation consultation by giving us a call on 0808 189 2301 or filling out our enquiry form.
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