UK Budget 2026 Changes for First-Time Buyers | New Mortgage Schemes & Deposit Options Explained

Welcome to Let’s Talk Money. This is a special episode about the budget
changes for first-time buyers. Today, we have Iftikhar Muhammad with us.

1. Major Budget Changes for First-Time Buyers

Host: Ifthi, what are some major changes in the budget for first-time buyers?

Iftikhar Muhammad:

There is some good news in the budget for first-time buyers. I think
there are a lot of positives they can take away.

One of the biggest changes is the introduction of the
Your First Home scheme, which is similar to the
Help to Buy scheme introduced a few years ago. Many of my clients
benefited from that scheme, and I was disappointed when it was withdrawn.
The government has now reintroduced a similar scheme under a different name.

There is also a new First-Time Buyer’s ISA scheme for people who want
to save money towards buying a house. In addition, there are some
concessions for people withdrawing money from their Lifetime ISA (LISA).

Overall, there are several positive changes that first-time buyers
can benefit from.

2. Understanding the Your First Home Scheme

Host: The Your First Home scheme seems really helpful for your clients. Could you tell us more about it?

Iftikhar Muhammad:

The Your First Home scheme allows eligible buyers to purchase a property
with a deposit of just 2.5%. The property must be a new build, and the
scheme is restricted to England.

There is also a household income cap, meaning applicants cannot earn
above a specified maximum income to qualify.

The main highlight is that buyers need to contribute only 2.5% of the
property price as a deposit, while the government provides an additional
20%. The buyer then needs a mortgage covering the remaining 77.5%.

The scheme is expected to begin accepting applications in February.
Mortgage advisers will be able to help eligible applicants understand
the process.

If you are a first-time buyer, start saving and collecting as much
deposit money as you can. This scheme could help you get onto the
property ladder.

3. Disadvantages and Risks of the Your First Home Scheme

Host: Are there any disadvantages that clients should be aware of?

Iftikhar Muhammad:

The first concern is negative equity. Since buyers
contribute only a 2.5% deposit, they could find themselves in negative
equity if property prices fall.

For example, suppose you buy a property worth £500,000 with a 2.5%
deposit. If the property’s value subsequently falls to £450,000, you
could owe more on your mortgage than the property is worth. You would
still be responsible for repaying your mortgage.

Another consideration is that the scheme is limited to new-build
properties. New-build homes can sometimes be priced at a premium
compared with similar properties in the same area.

The scheme is also restricted to England and has a household income
cap. People living elsewhere in the UK or earning above the eligibility
threshold will not qualify.

Although the scheme can be beneficial, it may not suit everyone.
It is important to understand the risks and seek professional advice
before applying.

4. The First-Time Buyer’s ISA

Host: You also mentioned the First-Time Buyer’s ISA. What is it, and how can it help buyers?

Iftikhar Muhammad:

This scheme is designed to help people save money towards purchasing
their first home.

According to the scheme details discussed, if you save up to £4,000
a year, the government will provide a bonus of £1,000. The maximum
savings limit mentioned is £25,000.

For example, if you save £4,000 every year for five years, you could
receive a government bonus of £1,000 for each qualifying year,
giving you a total bonus of £5,000.

You do not necessarily have to save the full £4,000 each year.
You can save less and receive a bonus based on the applicable scheme rules.

The speaker also highlights the removal of the age restriction that
applied to opening a Lifetime ISA, which previously prevented people
aged over 40 from opening one.

5. Can Existing Lifetime ISA Accounts Still Be Used?

Host: If a client already has a LISA account, can they still use it?

Iftikhar Muhammad:

Based on the information available at the time of the discussion,
it was understood that buyers could combine both schemes. This would
allow them to hold a Lifetime ISA as well as a First-Time Buyer’s ISA
and potentially use both towards their home purchase, subject to the
applicable rules.

This was presented as positive news for people who already have
Lifetime ISA accounts.

6. Alternative Mortgage Schemes for First-Time Buyers

Host: If clients do not want to enrol in the Your First Home scheme, are there any alternatives?

Iftikhar Muhammad:

There are several alternatives offered by banks and other lenders.
These include mortgages with no deposit, low-deposit mortgages,
track-record mortgages, and shared ownership schemes.

Zero-Deposit Mortgages

Some high-street banks offer zero-deposit mortgages. These can work
by requiring a parent or family member to deposit money, usually
around 10% of the property’s value, into a savings account with the
lender. The family member earns interest on the savings, while the
bank may offer the buyer a 100% mortgage, subject to its terms.

Low-Deposit Mortgages

Some lenders offer mortgages requiring a deposit of only 2%.
Other lenders provide mortgage products that require a fixed deposit
amount, such as £5,000 or £10,000.

For example, a £5,000 deposit on a £300,000 property represents less
than 2% of the purchase price.

Track-Record Mortgages

A track-record mortgage may be available to people who have a
consistent history of paying rent on time.

Lenders may review approximately 18 months of rental payment history
to assess whether an applicant is likely to keep up with mortgage
repayments. Eligibility and affordability depend on the lender’s
criteria and the applicant’s financial circumstances.

In some cases, the lender may assess affordability by comparing the
applicant’s rental payments with the mortgage payments they could
reasonably afford.

Help to Buy Wales

Buyers in Wales may have access to schemes such as Help to Buy Wales,
which has offered support for eligible buyers purchasing qualifying
new-build homes with a 5% deposit.

Shared Ownership

Shared ownership allows buyers to purchase a share of a property
while paying rent on the remaining share. This can reduce the initial
amount needed to purchase a home.

7. Preparing for a Low-Deposit Mortgage

Host: These schemes could help many clients. What should applicants be mindful of when applying for these mortgages?

Iftikhar Muhammad:

It is very important to maintain a good credit history when applying
for a low-deposit mortgage. Lenders take on greater risk when buyers
contribute only a small deposit, so they carefully assess applicants.

Maintain a Good Credit History

• Avoid missed or late payments.
• Set up direct debits to help ensure payments are made on time.
• Make sure you are registered on the electoral roll, where applicable.
• Check your credit report and address any errors or issues.
• Seek advice from a mortgage adviser if you need help improving your credit profile.

Manage Your Spending

Lenders may review bank statements to understand an applicant’s
expenditure and spending habits. Excessive discretionary spending
could affect their assessment of affordability.

For example, frequent spending on nightlife and other non-essential
activities may raise questions about an applicant’s financial
management. Applicants should keep their expenses under control
and demonstrate that they can manage their money responsibly.

Lenders may also use technology and authorised transaction data to
assess spending patterns, depending on the application process.

Pay Rent on Time

If you are renting, make sure your rent is paid on time. A consistent
rental payment history can help demonstrate that you are capable
of meeting regular housing payments.

Maintaining a good credit history, managing expenditure, and paying
rent consistently can strengthen your mortgage application. However,
lenders will still apply their own affordability assessments and
eligibility requirements.

8. Closing Remarks

Host:

Thank you so much, Iftikhar, for sharing this insightful information.

If you would like to learn more about the Your First Home scheme,
please watch our related YouTube video. If you need further details,
you can also contact our advisers, who will guide you through the process.

Until then, this is Shamir signing off. We will meet you again
in another episode of Let’s Talk Mortgages.