Getting your foot on the ladder

Published ¤ 24/06/2009

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Stimulating the first-time buyer market is now seen as one of the key factors in driving forward the recovery of the housing market. But with the market dynamics still not being seen as favourably as they could be what support is there for first-time buyers.

Greater support for first-time buyers

Well, the good news is that there is assistance in the shape of Government schemes. In December last year it set up the Homes and Communities Agency (HCA) to spearhead the delivery of affordable housing in England. Over the next three years it will be investing £8bn that will fund at least 180,000 new affordable homes and by 2010/11 aims to provide 70,000 homes a year - 45,000 for social rent and 25,000 for affordable sale.
The HCA has set up an umbrella initiative called HomeBuy, which will deliver a number of low cost home ownership schemes in addition to those that are already available such as MyChoiceHomeBuy. And, there are other schemes running outside of the HomeBuy initiative such as First Time Buyer Initiative (FTBI) and LIFT in Scotland (New Supply Shared Equity & Open Market Shared Equity Pilot).
Who are these schemes for?

These schemes have been established to help, primarily, first-time buyers. They have been designed for those who haven't been able to afford a property that is suitable for their needs in the area that they want to live and work. To apply for assistance, applicants’ joint earnings must be less than £60,000.

One of the core target audiences is public sector key workers such as qualified teachers or nurses. They are also designed to cater for the needs of social tenants and people who have previously owned a property but are now unable to buy another home without assistance because of a relationship breakdown.

It is clear from the conversations with clients that there is still a fair amount of confusion and desire for information about the various schemes on offer, the bodies involved in administering these schemes and how to take advantage of them.

So, let's take a look at what's on offer

First of all let's establish the difference between shared ownership and shared equity schemes.
Shared ownership schemes such as Social HomeBuy and New Build HomeBuy enable people to buy a share of their home with a conventional mortgage and/or savings, with the remaining share being owned by an approved third party organisation, typically a housing association. The homebuyer then pays rent on the share of the property that is owned by the third party. When the property is finally sold, the third party takes their percentage of the proceeds. For instance, you could buy 60%; of a house worth £150,000, and the housing association would own the other 40%. You would need to fund the purchase price of £90,000, and afford the rent on the remaining 40%; share (although this is often below markets rates). If the house is finally sold for £200,000, then the housing association would take £80,000, and the remainder of the proceeds would be yours (after repaying any mortgage).
With shared equity schemes such as MyChoiceHomeBuy, HomeBuy Direct, people purchase a percentage of a property with a conventional mortgage and/or savings but are also able to buy the remaining share that is then funded by a low interest equity loan offered by either a property developer or the Government through bodies such as the HCA.
MyChoiceHomeBuy enables people to borrow from between 15-50%; of the property’s purchase price or market value from a housing association to buy any suitable property on the open market in England. Purchasers have to pay interest at between 1-1.75% a year increasing by RPI +1% each year. The maximum property value is £250,000 and the remaining 50-85%; of the price is funded through a conventional mortgage.
HomeBuy Direct enables individuals to purchase a new property valued up to a maximum of £300,000 from over 130 developments across England. Individuals can secure an equity loan of 15-30% that is funded 50:50 by the HCA and property developer. There's nothing for the purchaser to pay back on this loan for the first five years of ownership and thereafter interest is paid at 1.75% increasing by RPI +1% each year. The remaining 70-85% of the price can be funded through a conventional mortgage.
With the recent increase in availability of mortgages, these Government backed schemes and the stabilising of house prices, now may be as good a time as any to launch onto the first rung. Buying for the first time can be a confusing and daunting prospect so for further information on local HomeBuy developments or to discuss buying for the first time, please contact us on the number above, or click here to send us a message.

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