Your First Home: the full picture behind the new deposit scheme

A deposit of two and a half per cent. That is the headline from Andy Burnham's announcement this week of the Your First Home scheme, confirmed as he arrived in Liverpool for his first Labour Party conference since taking office. 

First time buyers without support from family will be able to buy a new build home backed by a government loan worth twenty per cent of the property value. The Prime Minister set out the plan in a message posted directly online, and in an interview given to the press on the eve of conference.

How the scheme works

The mechanics are simple. Take a new build home priced at the current national average for first time buyers, around £230K  according to Rightmove. Under the scheme, a buyer would need:

• A deposit of two and a half per cent, around five thousand seven hundred and fifty pounds
• A government equity loan of up to twenty per cent, around forty six thousand pounds, interest free at the outset
• A mortgage covering the remaining seventy seven and a half per cent

That mortgage still has to pass a lender's ordinary affordability checks. A lower deposit gets a buyer to the starting line. It does not change what a bank is willing to lend.

What is still to be confirmed

The announcement is a statement of intent, not a finished scheme. Several important details are still to come:

• Household income caps and a deposit cap, to keep support focused on buyers who genuinely need it
• A price cap, to limit the scheme to modest properties
• Whether any age restriction will apply
• How running costs will be funded, expected to combine a fee charged to participating developers with money found by reprioritising existing government budgets

Chancellor John Healey is due to set out the full terms in next month's Budget, with registration for the scheme expected to open before the end of the year. Nothing here should be treated as settled until then.

An old idea, revived with adjustments

This is not a new approach. 

It follows the shape of the Help to Buy equity loan introduced by then Chancellor George Osborne in 2013, which offered a five per cent deposit alongside a twenty per cent interest free loan on new build homes, rising to forty per cent in London. That scheme supported more than 387,000 and, according to a government review, delivered around 25 billion pounds of social value in its final year.

It was also controversial from the start. 

Economists warned at the time that flooding the market with low deposit borrowing risked inflating a bubble that would make homes less affordable once the scheme ended, and questioned the wisdom of encouraging small deposits while regulators were pushing lenders in the opposite direction. Later versions of Help to Buy were narrowed to first time buyers only, with regional price caps added, before the scheme closed. A subsequent review found it had not always reached the people who needed it most, with some buyers benefiting who would likely have bought anyway.

Housing Secretary Angela Rayner has said Your First Home is designed to learn from that history while keeping the benefits. There is a telling detail behind the scenes here too. Housing officials under the previous Prime Minister had already proposed reviving a Help to Buy style scheme, but the idea was shelved by the then Chancellor in favour of spending on housebuilding instead. Burnham has now reversed that decision, while insisting the two approaches are not in conflict.

Will it help, or just push prices up

This is the question worth asking before welcoming a lower deposit too warmly. Helping more buyers compete for the same limited stock of new homes can, in principle, simply push prices higher, particularly if the supply of new homes does not grow at the same pace. Burnham has rejected this concern directly, arguing that housebuilding will increase alongside the scheme rather than being replaced by it. Whether that happens depends on planning reform and construction capacity, neither of which moves quickly.

It is also worth being honest about the limits of what a smaller deposit can achieve. It does nothing for monthly mortgage costs, which for many buyers are now the harder problem, particularly with interest rates well above where they stood when Help to Buy first launched. Furher because the scheme is restricted to new build homes, it offers nothing to buyers who need, or prefer, an older property.

What this means for you, and our advice

If you are a first time buyer relying on your own savings, this scheme is worth tracking closely over the coming weeks. Once the Budget confirms the detail and registration opens, eligible new build plots are likely to move fast. Buyers who have their finances and their legal representation ready in advance will be in a far stronger position than those starting from scratch once they have found a property.

A few things worth keeping in mind before signing up:

• An equity loan is a loan, not a gift. It is secured against your home and has to be repaid, usually on sale or remortgage, based on the value of the property at that point, not the amount originally borrowed.
• New build purchases carry their own legal work regardless of how the deposit is funded, including the developer's title, any estate management charges, and build warranties.
• Because pre registration is expected to move quickly once it opens, instructing a solicitor before you have found a property, rather than after, will save time when it matters.

Speak to us early if you are thinking about using this scheme. Getting the equity loan terms, the mortgage, and the purchase itself understood together, rather than pieced together under time pressure, is the difference between a smooth move and a stressful one. We will be following the Budget closely and will update readers as soon as the full terms are confirmed.

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