ISA and government schemes to help you buy a home
For most people, the hardest part of buying a home isn’t choosing where to live; it’s finding the money to afford it. That’s why the government offers several schemes created to help first-time buyers and aspiring homeowners.
Some help you save a deposit while others may help you buy with a smaller deposit, or get a share of a property instead of the whole thing. If you’re thinking about buying your own place but you want to look into the options available to you, you’ve come to the right place.
In this guide, we’ll be covering the basics of what support you can get to buy a home in the UK. Government schemes can make buying a home feel more achievable.
But saving is only one part of becoming mortgage-ready.
When you apply for a mortgage, lenders will also look at how you've managed your money over time. That means building healthy financial habits and a strong credit history can be just as important as choosing the right scheme.
Here are your key takeaways:
Several government schemes could make buying a home more affordable, including the Lifetime ISA, Shared Ownership and the Mortgage Guarantee Scheme.
A Lifetime ISA gives eligible first-time buyers a 25% government bonus on savings of up to £4,000 each tax year, but there are rules around how and when you can use it.
Some schemes can help you buy with a smaller deposit, access discounted homes or purchase a share of a property instead of the whole thing.
Government support can make homeownership more accessible, but mortgage lenders will still check your income, deposit and credit history.
What government help is available for first-time buyers?
If you’re a first-time buyer, the main schemes currently available are:
Lifetime Individual Savings Account (LISA)
Shared ownership
First Homes (England only)
Mortgage Guarantee Scheme
Rent to Buy
Right to Buy and Right to Acquire (for eligible tenants)
There are also nation-specific schemes in Wales, Scotland and Northern Ireland.
What is a Lifetime ISA (LISA)?
A Lifetime ISA is a savings account which gets a 25% government top-up each tax year. It’s an option that could give your deposit a serious boost, but there are rules for it.
You can open one in the UK if you are aged 18 to 39, and every tax year, you can save up to £4,000 into that account (which counts towards your overall ISA allowance). The government adds a 25% bonus, up to £1,000 each year.
You can use the money to buy your first home or leave it invested for retirement.
A Lifetime ISA can help you build your deposit, but remember that lenders will still assess your finances when you apply for a mortgage. Saving and building your credit profile go hand in hand.
What is the Lifetime ISA penalty?
There are rules to follow when withdrawing from a LISA if you don’t want to receive a penalty. You’ll usually pay a 25% withdrawal charge if you take money out for anything other than:
Buying a first home
Retirement after you turn 60
Terminal illness
That charge doesn’t just remove the government bonus; it reduces 25% of the total amount withdrawn which means it can reduce some of your own savings as well.
What’s happened to Help to Buy ISAs?
You can no longer open a new Help to Buy ISA, but a lot of people still search for them online. This is understandable as they were hugely popular.
The scheme, unfortunately, closed to new applicants in November 2019. Existing account holders can continue saving into their accounts if they opened one before the deadline. For most new savers, though, the Lifetime ISA is now the main government-backed savings product for first-time buyers.
What other government schemes can help you buy a home?
There are also a range of other homeownership schemes which can help with things like affordability, access to suitable housing and having a smaller deposit.
Shared ownership
Shared Ownership allows you to buy a share of a property and pay rent on the remaining share. Because you’re buying part of the home rather than all of it, the deposit and mortgage required may be lower than with the typical homebuying process.
With this scheme, it may be possible to increase your ownership over time through “staircasing”. By buying a larger share in the home, you can decrease your rent, and in some cases, you could end up owning 100% of the property.
Mortgage Guarantee Scheme
The Mortgage Guarantee Scheme helps lenders offer mortgages to buyers with smaller deposits. This can make it easier to access a mortgage with a 5% deposit. You don’t apply for the scheme directly with this one. Participating lenders use the government guarantee when offering eligible mortgage products.
Other schemes worth knowing about
First homes (England only)
If you’re a first-time buyer, you might be able to get a discount on some new-build homes. Find out more about it here.
Rent to Buy (England only)
If you’re a renter and saving for your first home, you might be able to pay reduced rent if you’re eligible. Discover how here.
Right to Buy
If you live in a council home and are an eligible tenant, you might be able to buy your home at a discount. Check out the UK government website for more information.
Right to Acquire
If you’re a housing association tenant, you might be able to buy your rented home at a discount. Find out if you’re eligible here.
Nation-specific schemes
Scotland, Wales and Northern Ireland have their own homeownership support schemes, so it’s worth checking what is available where you live.
These schemes can help make homeownership more accessible, but they don’t replace the mortgage application itself. Preparing your finances while you’re saving could put you in a stronger position when it’s time to apply.
How do government schemes affect your mortgage application?
Government schemes can help you save a deposit or access affordable routes into homeownership, but they don’t have a major effect on the mortgage application process.
If you use a government scheme, lenders will still look at factors such as:
Your credit history
Your income
Any existing financial commitments
Deposit size
This is why many future homeowners focus on more than just saving a deposit. The stronger your overall financial picture, the more confidence a lender may have in your application.
Government schemes can help you get closer to buying a home, but building positive financial habits along the way can help you become mortgage-ready too.
Building your credit while saving for a home
Throughout this guide, we've looked at ways the government can help you buy a home sooner. But while those schemes can support your savings or reduce the size of the deposit you need, they don't build your credit history for you.
That's where Loqbox can help. It can help you grow a credit history, which mortgage lenders like to see. It’s designed to help you develop positive money habits (like saving!) and build a strong credit profile to improve your chances of approval and get better interest rates on your mortgage.
Getting ready to buy a home isn’t just about saving enough for a deposit. It’s about showing lenders you’re ready to borrow, too. Find out more about Loqbox here.
Improvements to your credit score are not guaranteed.
FAQs
Can I buy a home with a 5% deposit?
Potentially. Some lenders offer 95% mortgages thanks to the support from the Mortgage Guarantee Scheme, which helps make these products available.
Can I use a Lifetime ISA for any property?
No. To avoid withdrawal penalties, the property must meet the scheme rules, including the current £450,000 property value limit.
Can I have a Help to Buy ISA and a Lifetime ISA?
You can hold both accounts if you already have a Help to Buy ISA. However, you can only use the government bonus from one scheme towards a property purchase.
Which home-buying scheme is best for first-time buyers?
This depends on your circumstances. If you’re saving a deposit, a Lifetime ISA might be a good place to start. If affordability is the challenge, Shared Ownership or the Mortgage Guarantee Scheme may be worth exploring.
The right option depends on your deposit, income, location and homeownership goals.
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