England to introduce 2.5% deposit scheme for first-time buyers
Key Points
- Your First Home offers 2.5% deposits on new-build homes in England
- The government will back each purchase with a 20% equity loan
- Equity loans start with an interest-free period
- Income and local property price caps will apply
- The Chancellor will confirm full details at next month's Budget
First-time buyers in England will be able to buy new-build homes with 2.5% deposits under a new government scheme.
The Ministry of Housing, Communities and Local Government (MHCLG) announced the Your First Home equity loan scheme on Saturday (26 September). The department said the Chancellor will confirm the scheme at next month’s Budget.
The scheme pairs a 2.5% deposit with a government-backed equity loan worth 20% of the property price. Buyers will need to purchase a new-build home from a developer that has signed up to the scheme.
The equity loans will come with an initial interest-free period. MHCLG said buyers using the scheme could save hundreds of pounds per month compared with taking out a 95% mortgage.
On a £300,000 new-build home, a 2.5% deposit comes to £7,500 and the equity loan covers £60,000. The buyer would then need a mortgage of £232,500, compared with a £285,000 mortgage and a £15,000 deposit on a standard 95% loan.
The government will set a household income cap and local property price caps to target the scheme at buyers who need it. MHCLG will publish the details of both caps at the Budget.
Developers must make a financial contribution when they join the scheme to help cover its costs. The Chancellor will set out the full cost of the scheme and its implementation timeline at the Budget.
MHCLG said the scheme will also support a new-build market facing international economic pressures and rising construction costs. The department expects the scheme to act as a stimulus for the sector and boost housing supply.
Your First Home follows the Help to Buy equity loan scheme, which closed to new applications in England in October 2022. Help to Buy offered 20% equity loans (40% in London) with a minimum 5% deposit, interest-free for the first five years.
