Everything you need to know about the Your First Home scheme

Saving for a deposit can feel like one of the biggest hurdles to buying your first home. With rent, bills and everyday spending competing for your savings, getting enough together can take time.

The government’s new Your First Home scheme aims to make that step more manageable, helping eligible first-time buyers purchase a new-build home with a deposit starting from just 2.5%.

So, how will it work, who could qualify and what should you consider before applying? Here’s what we know so far.

What is the Your First Home scheme?

Your First Home is a government-backed equity loan scheme for first-time buyers purchasing an eligible new-build home in England from a participating developer. It combines your deposit and a mortgage with a government-backed loan covering 20% of the purchase price.

The government has announced £4.7 billion in lending for the scheme and anticipates it will help around 70,000 households buy their first home.

The aim is to reduce the amount buyers need to save upfront and the size of the mortgage they need to take out.

How much deposit will I need?

The minimum deposit will be 2.5% of the purchase price, with a maximum deposit of 15%.

For example, if you were buying an eligible home priced at £250,000 with the minimum deposit, the purchase would be funded like this:

For comparison, a 5% deposit on the same home would be £12,500.

This example assumes the property meets the scheme’s local price cap and that you qualify for both the scheme and the mortgage. You’ll also need to budget for the other costs of buying a home.

Who will be eligible?

The scheme is aimed at first-time buyers, with household income limits to help target the support.

The announced annual household income caps are:

• £110,000 outside London
• £140,000 in London

These limits apply to household income, rather than a separate allowance for each buyer.

You’ll also need to buy an eligible new-build home from a developer taking part in the scheme and meet your mortgage lender’s affordability requirements. Being within the income cap won’t automatically mean you can borrow the amount you need.

What homes can I buy?

Your First Home will apply to qualifying new-build homes. It won’t cover existing homes being resold on the open market.

Property price caps will also apply and are yet to be announced outside London. These will be based on local authority median house prices, so the maximum eligible purchase price will depend on where you’re buying. 

The announced London caps are:

• £650,000 in inner London
• £500,000 in outer London

You’ll need to check the cap for your chosen area and whether the particular home you’re interested in qualifies.

Will I pay interest on the equity loan?

The equity loan will be interest-free for the first five years, with interest increasing gradually afterwards.

This could make the early years of homeownership more affordable, because you’ll have a smaller mortgage than if you bought the same home with a 5% deposit and a 95% mortgage.

However, any monthly saving will depend on your mortgage rate, mortgage term and individual circumstances. You’ll still make your mortgage payments during the interest-free period.

It’s also essential to plan for the equity loan interest that will become payable later. The information provided doesn’t specify the starting rate or exactly how it will increase.

How does an equity loan work?

An equity loan is linked to a share of your home’s value. It is borrowing that must be repaid, rather than a discount on the purchase price or a gift.

With this type of loan, changes in your home’s value can affect the amount you owe. Buyers should check the scheme’s final terms carefully to understand how that amount will be calculated.

The five-year interest-free period should not be confused with a five-year repayment deadline. The full rules will need to explain when repayment is required, whether you can repay in stages and what happens if you sell or remortgage.

Paying interest also doesn’t, by itself, reduce the original loan balance.

What else should I budget for?

A smaller deposit can help you get started, but it’s only one part of the cost of buying and owning a home.

Allow for legal fees, mortgage fees, moving costs and any Stamp Duty payable. Once you move in, your budget will need to cover mortgage payments, council tax, utilities, insurance and any service or estate charges that apply.

Looking ahead, include the equity loan interest after year five and consider how you might eventually repay the loan. Don’t base your plans on an assumption that house prices will rise.

When can I apply?

The information available for this guide doesn’t include a confirmed application opening date or the full application process.

Before making plans around the scheme, check the latest government guidance and ask your chosen developer whether they are participating and which homes will qualify.

Funding will be capped annually, so availability will also depend on the scheme’s funding and demand.