UK vs. US: First-Time Buyer Incentives to Get on the Property Ladder

Buying your first property is a big step and an even bigger investment. Thankfully, the UK and the US have incentive programs that can make this first step a lot easier, but how do they compare?

When you’re looking to buy a house for the first time, there’s more to it than you might think. Of course, you have to apply for a mortgage and instruct a conveyancing lawyer to help you with the paperwork. These are perhaps some steps that you hadn’t even considered, let alone what government incentives there are to help you out!

The truth is that, before you get on the property ladder, you’re going to need a down payment on the mortgage which is easier for some to find than others. In this post, we’re going to share the first-time buyer incentives that help people in both the UK and the US afford that payment.

What Are the UK’s First-Time Buyer Incentives?

The UK government has put a lot of time and effort into trying to get people on the property ladder. Most of this effort has resulted in government backed first-time buyer incentive schemes that give more people a chance to own their own home. 

If you’re living in the UK and you’re looking to get on the property ladder yourself, here are some of the schemes that can help you do it.

First Homes scheme

Launched on 4th June 2021, the First Homes scheme is the UK government’s most recent plan to help first-time buyers get on the property ladder. Under this scheme, first-time buyers can save up to 30 percent when buying a new-build home.

Once the 30 percent discount has been factored in, the maximum price homes can be sold for will be capped at £250,000 or £420,000 in London. The only requirements to get on this scheme are that you’re buying your first home and have household earnings under £80,000.

Any first-time buyers looking to get on this scheme need to take out a mortgage of at least 50 percent of the value of the property. Thankfully, many major banks and building societies have committed to offering high loan-to-value mortgages on homes sold under this scheme.

Help to Buy Scheme

The Help to Buy scheme is quite similar to the First Homes scheme, but it’s only available in England and Wales, not Scotland or Northern Ireland.

As with the First Homes scheme, Help to Buy is available to first-time buyers looking to buy a new build house. You need a deposit of at least five percent of the purchase price, and you can borrow up to 20 percent of the purchase price as an interest-free equity loan.

However, this loan is only interest-free for the first five years, after which you have to start paying the interest on the amount you borrowed. 

Lifetime Individual Savings Account (LISA)

LISAs are another great way to get on the property ladder as a first-time buyer. These savings accounts allow you to put in up to £4,000 a year until you’re 50, and the government adds a 25 percent bonus to your savings.

If there are two of you buying a house together, and you both have a LISA, you can use your LISAs in conjunction with each other. The only issue with them is that the money has to be used to buy a house, so any money you save in there is locked down for that purpose.

Either way, you can’t grumble at turning £4,000 into £5,000 once a year if you’re trying to save up for your first home.

95% Mortgage Guarantee Scheme 

The last first-time buyer incentive we’re going to cover before we move onto the US is the mortgage guarantee scheme.

Announced in the 2021 budget, this mortgage guarantee scheme allows lenders to purchase a guarantee on mortgages where borrowers only have a deposit of 5 percent. If a house sold under these scheme gets repossessed, the mortgage lender can receive compensation for losses suffered.

These guarantees cover 95 percent of the losses suffered, leaving five percent at the door of the lender so they retain some risk in every loan they arrange. These mortgage guarantees really help people with small deposits buy their first home. 

What Are the US’s First-Time Buyer Incentives?

Now that we have an idea of the first-time buyer incentives available to people in the UK, it’s time to turn our attention to the United States. 

A first-time buyer in the US has access to state programs, tax breaks, and federally backed loans if they don’t have the usual minimum down payment (usually 20 percent) of the purchase price for a conventional loan. Here are the main incentives available to them:

First-Time Home Buyer Grant

Grants and forgivable loans – loans that typically don’t require repayment – are available to low and moderate-income borrowers through state first-time home buyer programs. These programs vary from state to state but usually include household income and home sale price caps. 

Down Payment Assistance

As with the first-time home buyer grants, down payment assistance is offered by local and state housing authorities, which means the schemes vary from location to location. 

This assistance can come in the form of grants, zero-interest loans, and low-interest loans that help first-time buyers afford the initial down payment for a house. Down payment assistance also have income and home sale price caps which, again, vary from state to state.

First-Time Buyer Loans

There a whole host of first-time buyer loans offered by mortgage companies across the US. So, to make this a little easier, we’re going to list the most common ones and their requirements:

• FHA loan: a home loan insured by the Federal Housing Authority (FHA) that requires a decent credit score, two years of continuous employment, and a reasonable debt-to-income ratio

• VA loan: a loan insured by the US Department of Veterans Affairs that doesn’t require any down payment at all. You have to be a member of the armed forces, a veteran or a qualified spouse. These tend to have a pretty low interest rate.

• USDA loan: a loan aimed at low-income borrowers, primarily in rural areas, with no down payment required and a minimum credit score set by the individual lender.

• Conventional loan: a loan that isn’t insured by federal agencies but has low deposit schemes and no income restrictions.

Which Country Has the Best First-Time Buyer Incentives?

In this post, we’ve discussed the main first-time buyer incentives to get people in the UK and the US on the property ladder.

With the UK being a smaller country, it’s much easier to have a few first-time buyer incentives that are applied countrywide. This makes them easier to get your head around to get a sense of where you stand.

However, the US offers much more variety in first-time buyer incentives, meaning you have a better chance of finding a deal that suits you.