How HomeBuy could help you onto the ladder
DUE TO CHANGES IN THE HOUSE MARKET AND GOVERNMENT LEGISLATION, THIS ARTICLE IS NOW OUT-OF-DATE. FOR THE LATEST WAYS TO GET ON THE PROPERTY LADDER, CLICK HERE.
Like many other public sector workers, Veronica Hilliard, 41, a London teacher, was priced out of the market when she tried to buy her own home a couple of years ago.
One of Veronica's colleagues at her school suggested that she apply for a loan from the government through an initiative called the Open Market HomeBuy scheme, which aims to help keyworkers get a foothold on the property ladder. It enables those who qualify to buy a 75% stake in a property of their choice while the government and a mortgage lender provide interest-free loans to fund the remaining 25%.
In October 2006, Veronica was told that both she and her partner, Johan Dörksen, 42, were eligible, and after a brief hunt the couple settled on a house in Sutton, Surrey. "Even with the loan, I would only have been able to afford a flat in London, so I decided I'd rather travel into work and buy a house," she says. The purchase price was £237,000, and together with the 25% loans, Veronica and Johan took out a mortgage with Yorkshire Building Society.
Veronica admits the process wasn't as easy as she'd hoped. In addition to all the form-filling, the couple were advised to find a home as soon as possible - the scheme had a limited annual budget so they had to find something fast, before it was used up.
Open Market HomeBuy
However, the couple have no regrets. "Despite the stress, I'm happy we decided to go down this route. We're now planning to save up so we can pay off the equity loans within five years," she adds.
Taking part in the Open Market HomeBuy scheme means you take out three different loans. First, you take out a standard mortgage on your 75% share. This needs to be with one of the four lenders that are currently signed up to the scheme - HBOS, Nationwide, Yorkshire Building Society and Advantage, the mortgage arm of Morgan Stanley - although the Government is also looking for more lenders to take part.
However, as of December 2007 Advantage announced it was pulling out of the scheme temporarily.
Second, you take out an equity loan of 12.5% of the purchase price from the same mortgage lender. The lender will not charge interest for the first five years, but will take a share of any increase in the value of the property when you pay it off.
And third, the government provides another 'equity loan' of 12.5%. It won't charge you interest, but again will take a share of any increase in the property's value when you sell it or repay the loan.
There are two other types of Open Market HomeBuy schemes.
The first, unveiled in Summer 2007 by the government, involves just one equity loan worth up to 17.5% of the property's value or £500,000 (whichever is lower). The loan is provided by the government and administered by a HomeBuy agent.
The second is a scheme run by Yorkshire Building Society and was introduced in December 2007. The society offers a 15% equity loan with can be used in conjunction with the government's 17.5% product. The combined loan value is therefore 32.5% of the property's value.
New Build HomeBuy Scheme
Even if you are eligible, the Open Market HomeBuy scheme is not a solution for all keyworkers as you still need to find 75% of the purchase price yourself. So, if this isn't an option, another scheme called New Build HomeBuy could be more helpful.
This scheme, formally known as shared ownership, allows you to purchase as little as 25% of a property, while a housing association buys the rest. You then pay rent on top of your mortgage payments but have the option to gradually buy out the housing association, increasing the equity you own.
You have to buy a property approved by the scheme, but you can go to any lender for your mortgage. Seek advice from an IFA as lending criteria can be tighter than for standard purchases.
Like Open Market HomeBuy, certain keyworkers are eligible for the scheme, but rules on eligibility do vary across the country, depending on local priorities. In some parts of the country, HomeBuy schemes are also available to other groups of people who cannot afford to buy a suitable home on the open market. Priority is often given to existing tenants of housing associations and local councils or people on housing waiting lists, but other first-time buyers may also be eligible if they are struggling to buy.
Michelle Davis, 23, is a marketing assistant from Northampton. With a salary of just over £17,000, buying a home in a decent area seemed impossible. Michelle decided to apply to East Midlands Housing Association (EMHA) to see if she would be eligible for the scheme.
The eligibility criteria at EMHA broadly includes anyone who can't afford to buy a suitable property for their needs on the open market. At the same time, you need to be earning enough money to raise at least25% of the open-market value so you can secure a mortgage on your share of property and be able to comfortably meet the remaining rent you have to pay to the housing association.
Michelle says that although she was not on a waiting list or living in local authority housing, she had no problem with eligibility.
A year on since the move, Michelle's partner is now considering moving in and purchasing the remaining 50%. "At the time that I bought, we weren't ready to move in together, but now he's seriously considering buying the rest of the property so that we can own it outright," she says.
To extend eligibility to more people, the government has recently introduced a similar scheme called First Time Buyers Initiative (FTBI), delivered through the regeneration agency English Partnerships. Like New Build HomeBuy, this is a shared-equity scheme. First-time buyers must purchase at least half of the property and then pay rent to English Partnerships, which retains the rest.
Around half the homes available in the FTBI are for key public sector workers, but remaining homes are available to groups identified as priorities by regional housing boards. For certain groups, there is a limit onmaximum household income - commonly £60,000 - but again this varies across different regions for both the HomeBuy schemes and the FTBI, it's impossible to provide a broad-brush picture of eligibility criteria, as each area of the country sets its own priorities. The only way to find out whether you're eligible is to contact your local HomeBuy agent.
HomeBuy agents can register your interest, assess your eligibility and provide details of schemes in your area. To find your local agent, you should visit the Housing Corporation's website, which lists agents by region.
Who is eligible for the open market HomeBuy scheme?
Key public sector workers who qualify for the scheme (depending on regional priorities) include:
Clinical NHS staff (with the exception of doctors and dentists)
Teachers and nursery nurses in schools and further education/sixth form colleges
Community support officers and some civilian staff
Prison Service staff in certain prisons
Probation Service staff
Social workers, educational psychologists and therapists (for example, occupational therapists) employed by local authorities, CAFCASS or
Local authority planners
Firefighters and other uniformed staff below principal level in Fire and Rescue Services
A financial adviser who is not tied to any financial services company (such as a bank or insurance company) and is authorised by the Financial Services Authority (FSA). They can advise on financial products to suit your circumstances. All IFAs have to give consumers the choice of paying by fees or commission and have to explain which would best suit the customer in that particular instance. Also, if commission is paid either by the client or the financial service provider recommended by the IFA, the IFA must disclose what that commission is.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.