Your First Home scheme first-time buyers help: caps may bar families

Your First Home scheme first-time buyers help could miss many families if the government sets price caps as broadly as it did for Help to Buy, according to analysis by Savills. Mortgage Professional reported that tens of thousands of first-time buyers could be unable to use the scheme unless ministers set the caps far more locally. The research was first reported by The Times.

Mortgage Professional says Chancellor John Healey will publish the caps, along with an income limit, in the Budget on Wednesday 28 October. Savills says that if the old regional approach returns, families looking for a three-bedroom house rather than a flat would be hit hardest. Until the Budget, everything about the scheme remains a proposal.

Why regional price caps could leave families out

Mortgage Professional explains that for its first eight years Help to Buy had a single £600,000 ceiling across England. From 2021 that was replaced by regional caps worth 1.5 times each region’s average first-time buyer price, from £186,100 in the North East to £600,000 in London. Savills says averages across a whole region hid huge local gaps, and gave figures for a three-bedroom new-build of about 900 sq ft.

Source: Savills, via The Times, as reported by Mortgage Professional. Caps: Propertymark. The final column is our arithmetic.

Under the same £407,400 limit, a family in Ipswich had room to spare while one in Epping Forest was more than £240,000 short. Small changes to a cap make a large difference, Savills found. A notional £300,000 limit across England would bring a three-bed new-build within reach in only 10% of local authorities, and at £350,000 that rises to 58%. In 55 local authorities a cap above Help to Buy’s old £600,000 maximum would be needed for any three-bed home to qualify.

Savills also argues that buyers have changed since 2013, with more first-timers living with parents for longer and going straight for a family house instead of a starter flat. That is why, it says, a cap based on a regional average of first-time buyer prices could miss the homes families actually want.

What a price cap could mean for a family buyer

A worked example shows how the cap decides everything. Suppose, purely as an illustration, that the cap in a region matched Help to Buy’s East of England figure of £407,400. A buyer at that ceiling would pay a 2.5% deposit of £10,185, receive a 20% equity loan of £81,480 and need a mortgage of £315,735. These are our calculations from the announced 2.5% and 20%, not confirmed terms. A family eyeing an Epping Forest three-bed at about £650,000 would be roughly £242,600 over that cap, and the scheme would simply not apply.

Another estimate comes from UK Property Development (UKPD), reported by Mortgage Strategy. It assumes the new scheme keeps Help to Buy’s cap of 1.5 times the average first-time buyer price, which would put the English maximum at £368,273. On that, a 2.5% deposit would be £9,207, the equity loan £73,655 and the mortgage £285,411. At an assumed 4.49% over 25 years, UKPD puts repayments at about £1,585 a month, around £358 less than on a 5% deposit deal, and a five-year saving of £21,471. UKPD stresses that several details are unconfirmed, and a lender’s real rate for a 77.5% loan is not yet known.

London faces a separate problem. Paula Higgins, chief executive of the HomeOwners’ Alliance, notes that Help to Buy offered up to 40% in the capital while Your First Home offers 20%. On an average first-time buyer price of £467,000, she calculates a deposit of about £11,700 and a mortgage of about £362,000, which at 4.5 times income needs a household income of roughly £80,000. “The government should consider whether London needs a higher equity loan,” she said, though she accepted a bigger loan could push prices up. Mortgage Professional adds that if the income cap matched the £90,000 London limit for First Homes, such a buyer would need to earn between £80,000 and £90,000.

What surveys and analysts say about affordability

PropertyWire cites survey data in which 52% of prospective first-time buyers say monthly repayment costs are their main worry, ahead of the 44% concerned about rate volatility. Andy Morrison of UK Property Development, quoted by Mortgage Strategy, asked: “will there be enough homes available to satisfy this demand?” He warned that if not, “the potential benefit of the scheme will be significantly muted”.

What the scheme offers so far

According to The Money Pages, a first-time buyer would buy a new-build with a 2.5% deposit and a 20% government-backed loan. Mortgage Professional says the loan would be interest-free for an initial period and the mortgage would sit at 77.5% loan-to-value, which gives access to cheaper rates than a 95% deal. The Money Pages says the scheme applies only to new-builds from signed-up developers, and Mortgage Professional says developers will pay a fee linked to property values to join.

The length of the interest-free period has not been confirmed, according to The Money Pages. Mortgage Professional says the terms have not been published beyond that, and points to the old Help to Buy loan as a guide. Under the 2021–23 version, buyers paid no interest for five years, then 1.75% of the amount borrowed in year six, rising each April by CPI plus 2%. The loan was repaid as a share of the home’s value at the time, so any rise in value increased the debt.

We have found no funding total, end date or list of participating developers. A buyer therefore cannot yet tell whether the home they are viewing will qualify.

What happens next

The timetable is short. The Budget on Wednesday 28 October is when the caps and income limit are due. Mortgage Professional says pre-registration is due to open before the end of the year. When the Budget papers appear, we will update this article with the caps and the launch date.

For a buyer, the sensible order is to find the typical price of the type of home you want in your own local authority, then compare it with the cap once it is published. Ask the developer in writing whether it is signed up and what the repayment terms are, and only then pay a reservation fee. The Scottish Government’s evaluation of its First Home Fund shows why caution matters: one adviser warned that without more money, or a way to make it last, “we could just end up with a lot of disappointed people”. Your First Home has no announced funding total.

Your questions answered

What is the Your First Home scheme?

It is a government equity loan scheme for first-time buyers of new-build homes in England. The Money Pages says it will allow a new-build purchase with a 2.5% deposit and a 20% government-backed loan. A conventional mortgage would fund the balance.

Could price caps stop me using Your First Home?

They could. Savills says that if caps are set across wide regions, as under Help to Buy, buyers in pricier towns could find nothing they are allowed to buy, with families seeking three-bedroom houses most exposed. The caps are due in the Budget on 28 October, so check your own area then.

Who qualifies for the Your First Home scheme?

The full rules have not been published. The Money Pages says buyers must be first-timers buying a new-build in England from a signed-up developer, and that a household income cap and local price caps are planned. The detail is due at the Budget on 28 October.

What are the disadvantages of the scheme?

It is too early to judge. The scheme is limited to new-builds from signed-up developers, and Kate Davies of the Intermediary Mortgage Lenders Association has warned that this narrows buyers’ choice.