Andy Burnham announces new scheme for first-time buyers – here’s how it would work

First-time buyers who are struggling to get onto the property ladder will be supported by a new help-to-buy scheme, Andy Burnham has announced.

The new ‘Your First Home’ scheme will give savers access to a mortgage with just a 2.5 per cent deposit. A loan with 20 per cent of the property’s value will also be available to help pay for the purchase as part of the scheme.

Announcing the scheme ahead of Labour’s annual conference, the prime minister said: “Too many young people are struggling with the cost of housing, with many giving up hope of ever having a home to call their own.

“So we will step in to help more first-time buyers onto the housing ladder, especially those who can’t call on the bank of mum and dad.

“Your First Home will get them the keys to their own front door, and give builders the confidence to deliver the high-quality new homes the country needs. This Labour government is bringing back hope for people across the country.”

Funding for the scheme is expected to come from reprioritising existing government budgets, with housing developers also set to pay towards running costs.

The policy builds on the Help to Buy scheme, which ran from 2013 to 2023 under previous Conservative administrations.

Around 380,000 people were able to buy a first home through the scheme, with an official review of the scheme earlier this month finding that it delivered £25bn in social value over the lifetime of the scheme.

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However, critics argue Help to Buy did not properly target the people who most needed help to get onto the property ladder, and inflated housing prices.

Housing secretary Angela Rayner has said the new scheme will “build on the lessons learned from previous schemes”.

How will the ‘Your First Home’ scheme work?

In practice, the scheme means a home costing £230,000 – the UK average according to Rightmove – could be bought with a deposit of £5,750 and a loan worth up to £46,000.

This effectively covers £51,750 of the cost (22.5 per cent), reducing the mortgage debt to £178,250.

At a rate of 4.5 per cent, and over the course of 25 years, this equates to £990 a month in repayments for at least the initial fixed term.

With a standard 10 per cent deposit of £23,000, the mortgage debt would instead be £207,000. Under the exact same mortgage terms, this would put monthly repayments at £1,150.

However, the government-backed equity loan is also repayable, meaning further costs down the line.

If the same approach is taken as the Help to Buy scheme, this will mean initial 1.75 per cent interest-only payments after the first five years, with the rate then rising year-on-year.

These payments also won’t be paying off the loan sum. Buyers would instead effectively owe the government a 20 per cent stake in their home, which they can choose to pay off early or wait until they sell.

The duration of the interest-free period and rate of repayments have not been announced, with further details expected to be confirmed at the upcoming Budget.

One key change stated is that the scheme will set a household income cap alongside a property price cap “to further ensure support is targeted at those who need it”.