Is it the end of the road for first-time buyers? UK Mortgages

Episode: Is It the End of the Road for First-Time Buyers?

Host: Pradish

Guest: Ifthikar Muhammad – Mortgage Advisor with over 10 years of experience

Introduction

Pradish: The mortgage market seems tangled at the moment—just like a pair of earphones in your pocket. In this episode of Let’s Talk About Mortgages, we’ll simplify the complexities around the mortgage market.

Ifthikar Muhammad: Thank you, Pradish. It’s definitely not the end of the road for first-time buyers. There are many schemes out there that can help people get on the property ladder.

What’s Happening in the Mortgage Market?

Pradish: Many first-time buyers are confused about what’s going on. Interest rates are hovering around 5–6%, and existing homeowners are struggling with increased monthly payments—sometimes £500–£600 more. So, what exactly is happening in the mortgage market right now?

Ifthikar: Yes, the market is volatile, but it’s not the end of the road. There are various schemes available for first-time buyers. Even if clients aren’t ready to buy immediately, we can create a plan for them.

Average Deposit for First-Time Buyers

Pradish: I read that first-time buyers need to chip in around £68,000 on average as of 2022. I definitely don’t have £10,000 in my account, so I’d probably need help from the Bank of Mum and Dad. What are your thoughts on that?

Ifthikar: That £68,000 figure is just an average—it depends on where you’re buying. Not everyone buys in Central London. Many people start small in more affordable areas. The Bank of Mum and Dad plays a huge role, helping through deposits or acting as guarantors.

Schemes Available for First-Time Buyers

Pradish: What are the options available for first-time buyers who don’t want to rely on parents?

Ifthikar: Here are the main schemes:

• Shared Ownership Scheme – You buy a share of a property and pay rent on the rest.
• Mortgage Guarantee Scheme (95% Mortgage) – You put down 5% deposit, and the government guarantees part of the loan.
• Help to Buy Scheme – Closed in most parts of the UK but still available in some pockets.
• Joint Borrower, Sole Proprietor Scheme – Parents help with income for mortgage approval but aren’t listed on the property deed.

Lenders also have their own schemes, such as increased income multiples or flexible deposits.

The 95% Mortgage Guarantee Scheme

Pradish: What is the 95% Mortgage Guarantee Scheme?

Ifthikar: You put down 5% as a deposit, and the government acts as the guarantor—covering up to 80% of the property’s value. This encourages lenders to offer mortgages to first-time buyers.

Joint Borrower, Sole Proprietor Scheme

Pradish: How does this scheme work?

Ifthikar: Traditionally, parents guaranteed mortgages and were liable if the buyer defaulted. The Joint Borrower, Sole Proprietor scheme is different:

• The mortgage is joint, but the ownership is in the child’s name only.
• Parents help boost the affordability calculation using their income.
• Parents don’t appear on the land registry, so there’s no additional stamp duty.

This setup provides tax savings, as there’s no 3% additional stamp duty for owning a second property.

Tax Benefits

Pradish: Can you elaborate on the tax benefits?

Ifthikar: Yes. Stamp Duty Land Tax (SDLT) is reduced because parents aren’t listed as owners. For example, on a £200,000 property, you could save around £6,000 by avoiding the additional 3% charge.

Parents’ Role in the Mortgage

Pradish: Do parents have to provide a deposit?

Ifthikar: No. Their income is used to boost your borrowing power, not for the deposit. For example, if the bank is willing to lend £160,000 but you need £180,000, your parents’ income can help bridge that gap.

Shared Ownership Explained

Pradish: How does shared ownership actually work?

Ifthikar: You buy a share of a property with a Housing Association. For example:

• Property value: £400,000
• Your share: 25% (£100,000)
• You get a mortgage on your 25% and pay rent on the remaining 75%.

Over time, you can “staircase” by buying more shares—eventually owning 100% of the property.

Selling or Owning 100% in Shared Ownership

Pradish: Once I own 100%, does the Housing Association still have any claim?

Ifthikar: No. Once you buy the entire share, it’s fully yours. However, while you’re still in the scheme, some associations may have resale restrictions. Always check the terms or consult an expert before proceeding.

Zero Deposit Mortgages

Pradish: I’ve heard about zero-deposit mortgages. It sounds too good to be true. What’s the catch?

Ifthikar: It’s a lender-based scheme designed to help renters who have proven they can handle payments. If you’ve been paying £1,000 rent consistently, and your mortgage payment is similar, lenders may approve it.

There’s no hidden catch, but:

• Your credit score must be excellent.
• Lenders will perform strict affordability checks.

Help to Buy vs Right to Buy

Pradish: How does Right to Buy compare with Help to Buy?

Ifthikar:

• Help to Buy: Now closed in most areas but still active in some northern regions. The government contributes up to 20% deposit support.
• Right to Buy: Available to council tenants. They can buy their rented homes at a discounted price.

Example: If a house is worth £200,000 but you qualify for a £40,000 discount, you buy it for £160,000. That discount can count as your deposit.

Other Options for First-Time Buyers

Pradish: Are there any other schemes we haven’t covered?

Ifthikar: Yes, a few:

• Deposit Unlock Scheme – Bank-specific scheme to reduce deposit requirements.
• Higher Income Multiples – Some banks lend up to 5.5× your income.
• Lifetime ISA (LISA) – You save money, and the government adds a 25% bonus (up to a capped amount).
• Loan-Based Deposit Schemes – Certain lenders allow you to take a personal loan for your deposit, subject to affordability checks.

Always consult an adviser, as each bank has different eligibility rules and risk levels.

Final Thoughts

Ifthikar: It’s certainly not the end of the road for first-time buyers. There are multiple options available. The key is to seek the right advice and understand which scheme suits your situation best.

Pradish: Thank you, Ifthikar. I feel relieved knowing there’s still hope for first-time buyers like me.

Conclusion

Pradish: If you found this discussion useful, like, share, and subscribe to our channel. Stay tuned for more episodes of Let’s Talk About Mortgages—helping you make informed financial decisions.