Budget 2011: Mortgage scheme launched to help first-time buyers
The £250 million FirstBuy Scheme, which formed part of today's Budget, will support families who can't afford the high deposits required to obtain a mortgage.
The buyer will put down a deposit of 5% of the property value, while the government and homebuilder would provide 10% each in the form of a low-cost loan.
This would provide the first-time buyer with a 25% deposit. Reports claims the loans will be interest-free for the first five years. Interest will then be charged at around 1.75%, rising by 1% above inflation each subsequent year.
Only those with a joint income of less than £60,000 will be eligible for the scheme and it is available on new-build properties only.
Stuart Law, chief executive of property investment advisers Assetz, says the scheme could have been altered to help a larger number of people.
He says: "Rather than just help 10,000 first-time buyers raise 25% deposits on average, it would be sensible to help a significant number of first time buyers raise 10% deposits, since 85% and 90% LTV mortgages are available at reasonable rates."
Melanie Bien, director of broker Private Finance, says the FirstBuy Scheme is likely to be massively oversubscribed.
She says: "With first-time buyers struggling to raise the necessary deposit to get on the housing ladder, a scheme that requires only a 5% deposit and offers a 20% equity loan is likely to be extremely popular. House builders who are struggling to shift stock because of the higher loan-to-values lenders insist upon for new-build homes, will also be pleased at the welcome boost to their sector."
Mortgage Interest Scheme
Osborne also announced an extension to the Support for Mortgage Interest scheme. It will now run until January 2013.
Under the scheme unemployed homeowners can claim up to 100% of the interest payments on their mortgages once they have been out of work for 13 weeks or more. It applies only to mortgages of £200,000 or less.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).