by Mark Johnston
Many first time buyers have their dreams of owning a property dashed as they struggle to raise a deposit, the current average deposit is 39%. Gone are the days of 95% to 100% mortgages.
Shared equity home schemes are designed to assist first time buyers on to the housing ladder. The scheme helps by reducing the size of the mortgage required on the purchase relative to the property value.
A £250 million scheme to help first time buyer was announced in the 2011 budget. This scheme is for first time buyers wanting to buy a new build property but can not afford the high deposits been asked for.
June 2011 saw the launch of the first Firstbuy scheme specialised mortgage product. This scheme should help approximately 10,000 families enter in to the property market.
Borrowers using this scheme need to raise a mortgage of up to 75% of the property’s value and the other equity will be covered by an interest free loan from the government and builder.
The loan is only interest free in the early years and then carries a low rate in future years. It must be repaid in full when the property is sold and the funds will then be ‘recycled’ to fund more homes for the scheme.
When looking in to this scheme there are 3 key considerations to take in to account – serviceability, status and security.
Status: lenders will assess whether borrowers income and outgoings put them in a position to afford the mortgage repayments.
Serviceability: borrowers may have the income to repay the mortgage but will they pay? The lender will want to establish borrowers have a history of repaying debt and for this they will look in to credit history files.
Security: this is how the lenders get their money back if things go wrong, such as the lender will repossess the property and sell it to recover their funds. Therefore it is important that the property is saleable, this is usually the case with firstbuy scheme properties as they are newly built and come with a builders guarantee.
The mortgage industry has given it a cautious welcome, but has pointed out some deficiencies with the scheme.
Managing director of buy to let specialist mortgages for business, David Whittaker suggests: “the pool of buyers that qualify for the governments Firstbuy scheme is so small you could not even have a bath in it”.
Nicholas Leeming, business development director at property website Zoopla.co.uk believes: “the government’s Firstbuy scheme won’t go beyond scratching the surface of the problem faced by the vast majority of first time buyers”.
Many experts also believe that if the government think this scheme is going to transform the current housing market they are ‘mad’. The housing crisis will continue and they think first time buyers would be better served by house prices falling 20% or so. Therefore if first time buyers could use this money to buy on the open market things would get moving again further up the property ladder.
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