Perhaps you’re thinking of taking the leap towards owning your first home but would like to double-check that you qualify as a first-time buyer. Maybe you were previously involved in the ownership of a property and need to clarify whether you still meet the definition of a first-time buyer.
Either way, given how much you could save through Stamp Duty Land Tax (SDLT) relief and the help you might also get through government Help to Buy schemes, being classed as a first-time buyer can make a significant difference. It makes sense to have a clear understanding of who is – and who isn’t – a first-time buyer.
It’s therefore important to know the definition of a first-time buyer from the perspective of the government and mortgage lenders. Let’s dive in to see.
The Topics Covered in this Article Are Listed Below:
- How to Buy a House for the First Time
- The HMRC Definition of First-Time Buyer
- First-Time Buyers and the Lifetime Individual Savings Account
- The Help to Buy Equity Loan Definition
- Guarantor Mortgages
- How Can They Know Whether I Am a First-Time Buyer?
- What if I Own a Property Overseas?
- What if I Lie about Being a First-Time Buyer?
- Can You Be a First-Time Buyer More Than Once?
- Can I Be a First-Time Buyer if I Have Inherited Property?
How to Buy a House for the First Time
If you’re new to the house-buying process, it’s worth watching this video, as it explains the basics of purchasing a property, starting with how “first-time buyer” is defined, before discussing different types of mortgages and how you can arrange one. We also have a full first-time buyers’ guide that we’d recommend you reading. You'll also need to consider how to save for your mortgage deposit, how to buy your first home with a small deposit, or consider "No Deposit" and "Family Springboard" mortgages.
If you want to start researching mortgage options, you can visit our page on first-time buyer mortgages. You might also want to look at our summary of the government’s various Help to Buy schemes, including shared ownership. Help to Buy is partly aimed at helping first-time buyers get on the property ladder and could be ideal if this is your first experience in purchasing real estate.
There are 7 key steps involved in buying a house for the first time.
1. The first step is to contact a mortgage adviser. An initial consultation will give you an idea of how much you can borrow which mortgage might best suit your needs. If you’re happy with the guidance you receive, the adviser will present a DIP (Decision in Principle) from the preferred mortgage lender. A DIP is an initial approval that the lender will grant you a mortgage, assuming all conditions are met.
2. With a DIP in hand, you can now search for properties that meet your budget. It’s a good idea to contact several estate agents to make sure you see all the listings in your area.
3. Once you’ve found a house that ticks all your boxes, you can put in an offer. If your offer is accepted, you can then start your mortgage application.
5. Assuming the surveyor’s report is in line with the agreed price, your solicitors will then draw up a contract for the purchase of the property and conduct various searches and checks, including on the title deeds.
6. Your solicitor and the seller’s solicitor then exchange contracts. This is an agreement to purchase the property on an agreed date. You hand over your deposit at this stage.
7. Completion is the final step in the journey. This is when you’ve paid for the property in full and the mortgage loan has been transferred to the seller’s solicitor. You’ll then receive the keys to your new home.
The HMRC Definition of First-Time Buyer
Stamp Duty – officially known as Stamp Duty Land Tax (SDLT) – is a tax that must be paid if you purchase property or land in England or Northern Ireland that is above a certain price. This price is currently £125,000.
If you’re a first-time buyer, you don’t have to pay stamp duty for properties valued up to £300,000. If the price of your property is higher than that, you pay 5% on the portion between £300,001 and £500,000. If the property costs more than £500,000, there’s no Stamp Duty relief. Being classified as a first-time buyer therefore can make a significant difference to your costs when buying a home. Read more about Stamp Duty for First Time Buyers.
HMRC, the UK tax authority, sets out who qualifies as a first-time buyer in a guide published in 2017 as follows. “A first-time buyer is defined as an individual or individuals who have never owned an interest in a residential property in the United Kingdom or anywhere else in the world and who intends to occupy the property as their main residence.”
It’s worth reading this definition carefully, given how much might be at stake. An "interest” here is defined as any direct equity stake in a property – freehold or leasehold – even if the equity held is small. On the other hand, if you’ve owned property indirectly, such as through a limited company or through a real estate investment fund, this does not count, and you can still consider yourself a first-time buyer. The key issue is whether any property ownership entitled you to occupy or possess the land.
One exception mentioned in the HMRC document is in the case where someone has previously owned a property with a lease of 21 years or less. This is considered by the tax authority to be a short lease and not relevant. You can therefore re-enter the housing market as a first-time buyer.
Houseboats are also not considered property so, if you’re looking to buy a house on land for the first time, you’re also a first-time buyer. The same applies if you’ve only owned a commercial property previously, although this does not apply to mixed-use properties that included both a dwelling and commercial space.
It's important to note that you won't be eligible for Stamp Duty relief if you intend to use the property as rental accommodation. Find out more about Stamp Duty in our comprehensive guide.
First-Time Buyers and the Lifetime Individual Savings Account
If you have a Lifetime Individual Savings Account (LISA) you may be planning on using this to contribute to your mortgage deposit. If so, you’ll need to bear in mind that there are some requirements in addition to the HMRC definition if you wish to be considered a first-time buyer.
For starters, you must be a UK tax resident. The property must cost £450,000 or less and be the buyer’s main residence – not a buy-to-let. The withdrawal must be less than the purchase price of the property and be purchased with a mortgage – not cash down. Finally, the property purchase must be at least 12 months after the first payment was made into your LISA.
The Help-to-Buy Equity Loan Definition
If you’re a first-time buyer and planning to take out a Help to Buy equity loan, you should know that the property you intend to buy must be a new build. As well as excluding anyone who has owned a home or residential land now or in the past, the scheme also prevents first-time buyer status from being granted to anyone who has had any form of Sharia mortgage finance.
Also, if you’re married or in a civil partnership, you’re required to make a joint application with your partner to access the loan scheme. The same stipulation – that you have not owned a home or residential land, nor have you had any form of Sharia mortgage finance – must apply to both people.
If you’re purchasing a property with other people through any type of government Help to Buy scheme, then each party needs to meet the first-time buyer criteria for the first-time buyer declaration to be valid. This also means that all parties involved in the purchase must not have inherited or been gifted property, nor been added to the title deeds of another house.
If you're part of a couple and your partner is a first-time buyer and you're not, you might think that a good workaround to get Stamp Duty tax relief and potentially access a government Help to Buy scheme would be to make your partner the sole owner of the property.
There are two problems here. Firstly, this would only work if you’re not married or in a civil partnership. If either of these descriptions applies, you’re legally considered to be one buyer. Even if your partner has not bought or owned a property before, thanks to you, the law will apply as if they have.
Secondly, if the property is put in your partner’s name, you won’t have any legal ownership claim. This might be an issue if the relationship breaks down in the future. Also, if your partner is the only named person for the mortgage, only their salary can be considered in terms of the lender’s affordability assessment. This means you would not be able to borrow as much money as if you were applying jointly and may restrict the selection of properties you can realistically consider.
Ultimately, the simplest solution may be to accept that you can't be classified as a first-time buyer.
If you're a first-time buyer on a low income, you may wish to consider the guarantor mortgage option. Guarantor mortgages are primarily for first-time buyers. They allow parents or other family members to act as a guarantor for the borrower, without being a named owner of the property. The guarantor agrees to meet the monthly mortgage payments in case the borrower can’t, with the mortgage secured against their property. Guarantor mortgages are repayment-based loans. This means you pay back a portion of your mortgage loan each month, together with the interest.
Guarantor mortgages are extremely rare nowadays. Instead you might like to consider joint borrower sole proprietor.
How Can They Know Whether I Am a First-Time Buyer?
You must declare that you’re a first-time buyer during the house purchase process. Your conveyancer or solicitor will ask you to complete a first-time buyer declaration form. The presumption is that you’re not a first-time buyer until you state that you are on this form.
It’s true that it’s unlikely the government checks each application to ensure that a declared first-time buyer status is valid. However, it’s not a good idea to try to bend the rules. If you’ve owned property or residential land previously, this will be recorded with the Land Registry and would be easy to check.
Also, if you’ve owned property overseas before, HMRC has cooperation agreements with tax authorities in many other countries. So, you may be vulnerable to discovery at some future point.
Even if you previously owned a house decades ago, if you’re now divorced from the person you bought a home with, or even if the house you bought no longer exists, it’s just not a risk worth taking.
What If I Own a Property Overseas?
The HMRC definition of a first-time buyer above is unambiguous. If you’ve owned or had access rights to a property previously – anywhere in the world, and at any time – you cannot declare yourself to be a first-time buyer. This means you're not eligible for Stamp Duty tax relief or access to first-time buyer government support schemes.
The only exception would be if your ownership of the overseas property was indirectly held, for example through a limited company or another corporate structure in which you had equity.
What if I Lie About Being a First-Time Buyer?
As all you must do is sign a declaration form saying that you’re a first-time buyer during the conveyancing process, it might be tempting to muddle the truth.
That said, you should bear in mind the consequences of being found out. A false declaration is considered a serious tax evasion offence. This means that it's possible you may lose your home and potentially other assets, as well as acquire a criminal record.
HMRC can access Land Registry and SLDT databases. They also can demand and assess your bank account records and credit reports. If they do decide to investigate, it’s safe to assume that they'll find out if you’ve previously owned or had an interest in a residential property or residential land.
Thanks to the HMRC’s information-sharing arrangements with overseas tax authorities, it’s unlikely that you could hide ownership of overseas properties forever either.
Can You Be a First-Time Buyer More Than Once?
There’s no statute of limitations on when you previously owned a property. Even if the last time you owned property was 30 years ago, you cannot consider yourself to be a first-time buyer. The same applies if you previously owned a house with your marriage partner and you’re now divorced, or if your spouse has now died.
Can I Be a First-Time Buyer If I Have Inherited Property?
If you've inherited residential property or land from a deceased relative or via marriage – even if it was a small share – you cannot declare yourself to be a first-time buyer. The same applies if you were gifted a house, or you have been added to the title deeds of a property purchased by someone else. The only exception is if you inherited non-residential property or a mixed-use property that did not include a dwelling. Read more: Can I Get a First-Time Buyer Mortgage on Inherited Property?
People often make the common mistake of assuming that simply because they’ve not actually bought a house in the past, they can still consider themselves to be first-time buyers. In fact, being a first-time buyer relates to whether you have owned property in the past, rather than whether you actually purchased it or not.
If there is some likelihood that you may inherit property in the future, there are certain things you can do to retain your status of first-time buyer. For example, instead of property being inherited, your relative could change their will to sell the property when they pass away and have the proceeds allotted to the beneficiaries.
Alternatively, if there are various assets as part of the estate, some of the properties could be assigned to specific beneficiaries. Cash – via a sales process – could be given to beneficiaries who wish to hold onto their first-time buyer status.
If you’re looking to take your first step onto the property ladder, let us help you get started. Contact an adviser on 0330 433 2927 or enquire online today.
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