A new £4.7bn government scheme will help 70,000 households on to the property ladder and save first-time buyers “hundreds of pounds a month”, the chancellor, John Healey, said on Wednesday.
Last month, Andy Burnham announced Your First Home, which aims to give a helping hand to first-time buyers in England who do not have access to the “bank of mum and dad”, and Healey revealed in his first budget how the scheme would work, including who would be eligible.
Isn’t there already a scheme like this called help to buy?
You could argue Your First Home (YFH) is effectively an updated version of the Conservatives’ flagship help to buy scheme, which ended in 2023.
YFH applies to England only and is just for prospective first-time buyers hoping to buy a new-build flat or house.
Those taking part, who buy a home from a participating developer, will be offered a government-backed “equity loan” worth 20% of the purchase price. This will be interest-free for the first five years.
Meanwhile, the minimum deposit the buyer will have to put down will be just 2.5% (the maximum deposit will be 15%). That means buyers will only need to take out a standard repayment mortgage for 77.5% of the property’s value.
Because the equity loan part is initially interest-free, the government says participants “could save hundreds of pounds per month compared with a standard mortgage”.
The government says £4.7bn of funding is available for the scheme over five years.
Customer pre-registration is scheduled to open by the end of December, with customer applications from February 2027, and the first loans issued from April next year.
It is not clear yet whether the devolved governments will launch their own versions of YFH.
So who can – and can’t – benefit?
Ministers are keen to ensure YFH is not exploited by those who can already afford a home.
There will be a household income cap to exclude those on bigger salaries from taking part. Buyers will need to have a total annual household income of £110,000 or less outside London, or £140,000 or less within London.
There were reports ministers had initially looked at setting these earnings limits at £90,000 and £110,000 respectively, but then decided this would leave too many middle-earning couples locked out.
There will also be local property price caps limiting how much people can spend on their first home. A full list of caps by local authority area will be published “shortly”, though some have been announced. In inner London, the price cap will be £650,000, and in outer London it will be £500,000. Example figures were also given for Reading (£375,000), North Devon (£320,000), Manchester (£355,000) and Middlesbrough (£220,000).
The property website Rightmove said its analysis showed that 35% of new-build homes for sale in inner London now cost less than £650,000, while 46% of those in outer London were under the £500,000 cap. But it said only 18% of new-build homes for sale in Middlesbrough were on sale for less than £220,000, while only 20% of those in Reading were under the £375,000 cap.
Tell me more about these equity loans…
They will be interest-free for five years. After that, you start to pay interest. In year six, buyers will pay 1.5%, rising to 3% from year seven onwards.
Interest payments are separate to the mortgage and do not reduce the amount of equity loan that someone owes.
Those who use the scheme will own their home from the day they complete their purchase. “The government will not be a joint owner or your landlord,” said the Treasury.
The equity loan is linked to the value of the property. If the loan was worth 20% of the purchase price, the buyer will normally repay 20% of the home’s value when they repay the loan. So if the value of someone’s home rises, so does the amount they owe on their equity loan. Equally, if the value falls, what they owe falls, too.
The equity loan will typically be repaid when you sell your home. You will also be able to repay some or all of it before then.
How does the maths work in practice?
Let’s say someone uses the scheme to buy a £300,000 home. A 2.5% deposit on a property of that value would be £7,500. They would be able to get a government equity loan of £60,000 (20% of the purchase price) and would need to take out a mortgage for the remaining £232,500.
A buyer purchasing the same home with a standard 95% mortgage would typically need a £15,000 deposit and a £285,000 mortgage, says the government.
Because of the equity loan and deposit, the mortgage needed is for 77.5% of the property’s value, which should enable buyers to access lower interest rates than they would typically see on a 95% mortgage.
Based on someone buying a £300,000 home with a £60,000 equity loan and a 30-year repayment mortgage with an interest rate of 5%, and putting down a 2.5% deposit, the total bill during the first five years would be £1,248 a month under YFH, compared with £1,530 a month for someone not in the scheme who takes out a standard 95% mortgage. In this example, in year six the equity loan interest bill would be £75 a month, rising to £150 a month in year seven onwards.
How does this compare with help to buy?
There were various versions of help to buy over the years. With the final version, the equity loan on offer was between 5% and 20%. However, that rose to up to 40% in London – so in that respect, the new scheme is less generous for those in the capital.
On the flipside, with help to buy, buyers needed to stump up a deposit of at least 5% – twice that of the new scheme.
Help to buy had regional property price caps – in London it could be used to buy a home costing up to £600,000 – but did not restrict eligibility by income.
Participating developers will be expected to make a contribution to the new scheme in the form of a fee, to help cover costs.
