As the government announces plans to help first-time buyers access low-cost mortgages, while those on housing benefit can use it towards their mortgage repayments.

More than 2.5 million people are set to benefit from government plans to extend the Right to Buy scheme to housing association homes.

The announcement was part of a package of measures to make it easier for first-time buyers to step onto the housing ladder.

Other changes include allowing people to put housing benefit towards mortgage repayments, while money saved in Lifetime ISAs for a housing deposit will be excluded from benefits calculations.

Prime Minister Boris Johnson also announced plans for an independent review of the mortgage market to improve access to low-cost mortgages for first-time buyers with 5% deposits.

Johnson pointed out that more than 50% of people who currently rent could afford to make monthly mortgage repayments, but strict mortgage lending restrictions and high deposit requirements meant only 6% could access a typical first-time buyer mortgage.

He said: “We have a ludicrous situation whereby plenty of younger people could afford to make monthly mortgage payments – they’re earning enough to cover astronomical rent bills – but the ever-spiralling price of a house or flat has so inflated deposit requirements that saving even just 10% is a wholly unrealistic proposition for them. We want it to be easier to get a mortgage.”

Why is this happening?

Under current rules, people who live in council houses are able to buy their home at a discount of up to 70% of its market value, depending on how long they have lived there.

But the scheme is less generous for those who rent from a housing association. The government now wants to change this.

It is also looking to remove some of the barriers that prevent people who could afford a mortgage from taking one out, as well as addressing issues in the benefits system that prevent people from becoming homeowners.

Who does it affect?

The measures are great news for aspiring first-time buyers as it increases their chances of becoming homeowners.

More than two million people have purchased their council home through Right to Buy since it was first launched in the 1980s.

Meanwhile, it has long been a complaint of first-time buyers that mortgage repayments are considered to be unaffordable for them by lenders, even though they currently pay more each month in rent.

What are the details?

Full details on how Right to Buy will operate for housing association renters are not yet available, with the government saying it will work closely with the sector on the design of the scheme.

But it has committed to building new social housing homes to replace each one that is sold, to ensure the number of homes available to rent does not reduce.

The government also hopes to help more people to become homeowners by letting them use housing benefit towards mortgage repayments.

Around 1.5 million people who are in work receive housing benefit but at present it can only be used to pay rent to housing associations or private landlords.

It also plans to amend the rules for Universal Credit to enable people claiming the benefit to save for a housing deposit.

Under current rules the amount of money people receive is reduced if they have savings of more than £6,000, while they receive nothing if they have more than £16,000 in the bank.

The government plans to exempt money saved in Lifetime ISAs from this assessment, enabling recipients to save for a deposit without losing any benefits.

People can save up to £4,000 a year in a Lifetime ISA, to which the government then adds a 25% bonus – up to a maximum of £1,000 annually – for free.

The money must be used to either purchase a first home or for retirement.

Key takeaways

  • More than 2.5 million people are set to benefit from government plans to extend the Right to Buy scheme to housing association homes
  • People will also be able to put housing benefit towards a mortgage, while money saved in a Lifetime ISA towards a housing deposit will be excluded from benefits calculations
  • Furthermore, a review of the mortgage market will be carried out to improve access to low-cost mortgages for first-time buyers with small deposits