LSL Financial Services has welcomed the government’s proposed 2.5% deposit scheme for new-build homes, but warned that uncertainty over its terms could temporarily hold back first-time buyer activity.
The Your First Home scheme will enable eligible buyers in England to purchase a new-build property with a 2.5% deposit, supported by a government equity loan covering 20% of the purchase price.
Household income and local property price caps will apply, although the thresholds and launch date are not due to be confirmed until the Budget on 28 October.
The initiative follows the closure of Help to Buy in 2023 and comes as the housebuilding industry continues to contend with weaker sales and lower levels of construction.
DEPOSIT AND AFFORDABILITY
Craig Hall, director of strategic partnerships at LSL Financial Services, said: “Everyone connected to new homes has been desperate for some sort of government support, so this is hugely welcome.
“The new-build market is in need of reinvigoration. Builders are throwing everything at every customer in incentives and starts and completions have been going the wrong way for a couple of years. This will help get builders building and selling again.
“The two biggest hurdles for first-time buyers are the deposit and affordability. Help to Buy ticked both boxes and, with a 2.5% deposit, this new scheme goes further, so buyers can get on the ladder even earlier.”
Hall said the period before the Budget could, however, encourage some prospective purchasers to delay transactions until they know whether they qualify and how the scheme will operate.
He added: “While this is great news for the industry, there is a risk that first-time buyers who are ready to buy now will hold off until they know how the scheme works. That would be a perfectly reasonable reaction.
“The Budget will give us much more to go on. We hope the income and price caps are realistic, so the scheme works for first-time buyers, wherever they live, and that those caps are reviewed regularly to keep pace with rising house prices and wages.”
LENDER PARTICIPATION
Another question for the mortgage market will be how lenders accommodate the 2.5% buyer deposit, given that many currently require borrowers to contribute at least 5%.
Hall said: “It will be interesting to see how lenders react. Many require borrowers to put down at least 5%. The good news is lenders already have the infrastructure from Help to Buy.
“Around 30 supported it before it closed, from high street banks to specialist lenders and regional building societies, so I’d hope any barriers can be overcome.”
LSL plans to examine the practical implications of the scheme at its New Homes Forum on 19 November, three weeks after the Budget, with housebuilders, lenders and brokers due to take part.
The announcement comes after measures elsewhere in the UK aimed at supporting first-time buyers. The Welsh government said in July that Help to Buy – Wales would remain open to applications until 31 March 2027, while Scotland’s First Homes Fund opened in June, offering first-time buyers up to £10,000 towards homes valued at up to £300,000.
