Your First Home scheme: Will it unlock the housing market? – Boon

Having helped hundreds of first-time buyers this year at Boon Brokers, we have found that their primary concern is often raising a large-enough deposit. Saving while paying rent remains their most significant obstacle. Therefore, reducing the upfront deposit requirement to a minimum of 2.5% is welcome for these buyers.

As rental costs continue to increase across many areas in the UK, first-time buyers will be increasingly motivated to purchase their own home and escape the volatility of the rental market. Therefore, broadly speaking, I expect demand to increase for new-build properties next year, thus raising house prices in those areas. The minimum 2.5% deposit requirement from the Your First Home scheme will enable first-time buyers to save for a deposit at a far quicker rate. In addition to this, parents may be more likely to gift the full deposit sum, as 2.5% will be far more attractive than the usual 5% minimum requirement from lenders.

Forecasting demand

However, demand will largely depend on affordability criteria from both mortgage lenders and the equity loan provider. If we refer to our experience with the Help to Buy Equity Loan scheme, mortgage lenders could often lend the sum requested by applicants. The affordability constraints usually came from the Help to Buy providers, who were unable to lend the required equity loan. Therefore, we should wait until the government publishes the affordability criteria for the equity loan before we forecast the extent of the demand growth from first-time buyers because of the scheme.

Demand will also hinge on local authorities’ price caps for eligible properties. The government has confirmed that these caps will reflect median prices, potentially excluding higher-priced new-build homes in each area. However, new-build homes that are affordable for average earners should fall within the scheme’s eligibility criteria.

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Although the scheme is likely to increase demand for new-build mortgages, its deposit structure may add complexity for lenders developing suitable products. The Budget confirmed that eligible first-time buyers purchasing a qualifying new-build home in England as their main residence can contribute a deposit of between 2.5% and 15%, alongside a government equity loan of up to 20% of the purchase price.

For example, a buyer contributing a 2.5% deposit and taking a 20% equity loan would require a mortgage at 77.5% loan to value (LTV). Lenders could introduce products specifically for this borrowing level or price these mortgages within their existing 80% LTV bands, as they would typically do for other buyers with a 22.5% deposit. Regardless of their approach to pricing, I expect lenders to develop mortgage products tailored to the scheme, as they did with Help to Buy.

Overall, the Your First Home scheme should support demand for new-build homes and encourage further development. Its success will depend partly on lenders introducing suitable products and establishing clear requirements for assessing buyers’ deposits, equity loans and mortgage affordability.