In the property and housing markets, first-time buyers play a pivotal role. But who is a first-time buyer?
While that may sound like a silly question at first glance, one must consider the specific legal and financial characteristics of a first-time buyer. Plus, the eligibility criteria may vary in different countries.
But fret not, as this informative article explains all about first-time buyers and how they are different from other home seekers.
If you are embarking on the journey towards homeownership, understanding the ever-evolving landscape of the property industry will be helpful in making the right financial decision.
So, without further ado, let’s dive right in…
Table of Contents
Who Is A First-time Buyer?
In simple terms, a first-time buyer is someone seeking to purchase a property for the first time. However, according to mortgage lenders, home builders, and the government of the UK, the definition of a “first-time homebuyer” is slightly more nuanced.
Besides never partaking in the home buying process, a first-time buyer is someone who lacks residential property in their name, which could be sold to fund their new home.
Age and income are not determining factors, though a higher income may limit access to certain first-time buyer programs and incentives.
The crucial aspect is that the deposit for your home must originate from inheritance, savings, etc., but not from selling a property.
Who Qualifies As A First-time Buyer?
Case 1
If you’ve never owned a residential property but a commercial one, you may still be eligible for first-time buyer status. As such, you may benefit from stamp duty relief. However, if the said property had a residential element (classified as semi-commercial), you won’t qualify.
Case 2
If you are applying for a joint mortgage with someone who has never owned a residential property, both applicants are eligible for reduced stamp duty.
Case 3
If you have never owned any property before and are seeking a mortgage individually, you are a genuine first-time buyer. You don’t have any complicated rules to worry about.
Who Doesn’t Qualify As A First-time Buyer?
Case 1
If you have previously owned a property and sold it, you are not an eligible first-time buyer. To qualify, you must have never owned any residential property before.
Case 2
If you’ve owned a residential property overseas, you cannot take advantage of a first-time buyer status.
Case 3
If you had a shared ownership or joint mortgage in the past, you no longer qualify as a first-time buyer.
Case 4
If you’ve inherited a property or were added to the deeds, you cannot be a first-time buyer. This is because the first-time buyer status depends on ownership and not the method of acquisition.
Case 5
If your spouse or a co-owner has owned a residential property before and you are buying jointly, you won’t be considered a first-time buyer in this case as both applicants must have never owned a property before to benefit from a reduction in stamp duty and to gain access to first time buyer benefits.
Case 6
If you previously owned a buy-to-let property, you are no longer eligible as a first-time buyer.
Benefits of Being A First-time Buyer
As first-time buyers must rely on their savings or gifts and not proceeds from selling an existing property, it can sometimes be slightly more difficult for them to enter the property market. With the average house price at £285,000, saving for a deposit could be tricky.
Fortunately, various schemes are available to support first-time homebuyers in the UK:
In a shared ownership scheme, you purchase a portion of the property while a housing association owns the rest. You then pay rent on the portion of the share you don’t own whilst paying your mortgage for the share you do.
Gradually, you can buy more of a share until you reach full ownership (“staircasing”).
To qualify for shared ownership, the following must be true-
- Have a household income below £80,000 (£90,000 in London)
- You cannot afford all of the deposit and mortgage payments for a home that meets your needs.
In Scotland, shared ownership prioritises low-income groups, senior citizens, individuals with disabilities, members of the armed forces, etc.
2. Right To Buy
If you reside in a property owned by the local council, you can express your interest in purchasing the house through the Right to Buy scheme. To qualify-
- The property must be your primary residence
- You should have been renting from the council for a minimum of three years
- You must be a responsible tenant and keep up with the monthly payments
Under Right to Buy, you’ll receive a discount on the value of the home, reflecting the amount of time you have been a tenant with a public sector landlord.
The discount starts at 35% (50% for flats) and increases by 1% (2% for flats) for each year of residence after 5 years up to a maximum of a 70% discount or £96,000 (£127,900 in London Boroughs).
However, this scheme is only available in England and Northern Ireland.
3. Stamp Duty Relief
Stamp duty is a government tax levied on property purchases, due within 14 days of completion. Rates depend on the property value and previous ownership.
In Northern Ireland and England, first-time buyers are currently exempt up to £425,000. In Wales and Scotland, the thresholds are £180,000 and £175,000, respectively.
Properties between £425,001 and £625,000 incur a 5% stamp duty for first-time buyers. You will only pay stamp duty on the amount over and above £425,000 and below £625,000 rather than the whole amount.
To give you an example, purchasing a property of £450,000 you would pay £1250 in Stamp Duty (5% of £25,000).
Changes were made to the stamp duty thresholds on 23 September 2022 and look to remain in place until 31 March 2025.
FAQs
1. How do lenders know if you are a first-time buyer?
Banks can determine if you’re a first-time buyer by checking the land registry for your name. They may also use your national insurance number to verify stamp duty payments through HMRC or review your credit history for past mortgages.
While it may be challenging for the government to ascertain your home ownership outside the UK, they can readily identify if you qualify as a first-time buyer within the country.
Consequently, engaging in mortgage and tax fraud or lying on the first-time buyer declaration can potentially lead to serious legal repercussions and potential loss of property obtained via government assistance schemes.
2. Can you be a first-time buyer twice?
You cannot be considered a first-time buyer twice. However, some lenders may make an exception and treat you as a first-time buyer again if you meet their specific requirements.
For instance, Nationwide Helping Hand mortgage considers you a first-time buyer if you haven’t had a mortgage in the past three years
3. What Is The Average First-Time Buyer Deposit?
The average deposit for a first-time buyer tends to be around 5% of the home’s purchase price. However, this can vary depending on factors such as the buyer’s age and the type of mortgage loan they opt for.
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