Your First Home Scheme: Verdict from Gerard Boon

For London's first-time buyers, the Your First Home Scheme may help tackle one of the largest obstacles in home-ownership: building a deposit while paying rent. In a housing market where just 5% of the purchase price can take years to save, reducing the minimum deposit to 2.5% could make a first-purchase within reach considerably faster.

At Boon Brokers, our conversations with hundreds of prospective first-time buyers that year has repeatedly highlighted the difficulty of saving for a home deposit. If someone is considering an eligible £400,000 London residential home, a 2.5% deposit would amount to £10,000. Even though this remains significant, especially alongside legal fees, moving costs, etc, it represents a far more achievable target than £20,000 (to achieve a 5% minimum deposit).

The government's 20% equity loan also reduces the mortgage required. In that example, a buyer who contributes £10,000 would receive an £80,000 equity loan and need a £310,000 mortgage - equivalent to 77.5% of the purchase price. This could give access to more competitive mortgage deals than higher loan-to-value borrowing, depending on participating lenders' products. Although, applicants would still need suitable income to satisfy the lender's mortgage affordability criteria.

New-build premiums and negative equity risks

My concern with the scheme is that the smaller deposit could encourage buyers to focus too heavily on rushing into buying a home, without adequately considering the purchase price and longer-term costs. The government's own Help to Buy evaluation identified an average premium of around 6% compared with similar second-hand properties.

That finding does not establish an immediate loss in value for a London buyer. However, a 2.5% deposit provides limited protection should prices fall, or if the new-build premium is not retained on the next sale.

Buyers could potentially be in a position of negative equity once both the mortgage and equity loan have been considered, making a future sale or refinance more difficult.

For London buyers considering new-build flats, be aware that service charges, lease terms and anticipated building expenditure need close attention. These commitments must be affordable in the long-run.

Overall, the Your First Home scheme could offer Londoners a valuable route to home ownership, allowing them to escape the rental market. Its success for households will depend on buying at a realistic price and ensuring that the financial commitment remains feasible without relying on future house-price inflation.

Written by Gerard Boon, Managing Director of Boon Brokers.