Government schemes to help boost the housing market

Published by Christine Toner on 15 June 2012.
Last updated on 15 June 2012

House and key

First-time buyers are, it is often said, the lifeblood of the mortgage market. It’s no surprise then that, without them, the housing industry in the UK almost flatlined.

The government is attempting the kiss of life with a selection of schemes aimed at getting first-timers on to that first rung of the property ladder, but what are they and do they work?

THE FIRST BUY SCHEME

This scheme is open to those wanting to buy a new-build property with a household income of less than £60,000 a year. If you fit the bill you will receive an equity loan of up to 20% of the value of the property from the government and the housebuilder, providing you have a 5% deposit.

The loan is interest-free for the first five years then there’s a 1.75% annual fee. This will rise by inflation plus 1% each year. When you sell the house, or once you’ve lived there for 25 years, you’ll have to repay 20% of the value of your home to the government and housebuilder.

The good thing about this scheme is that “buyers gain access to a much wider choice of mortgages at better rates than if they were borrowing, say, 95% loan to value,” says Mark Harris, chief executive of broker SPF Private Clients.

However, it is only available on new builds and you could end up paying back far more than you borrowed if house prices soar.

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SHARED OWNERSHIP

With shared ownership, first-time buyers can buy a share of a property – usually 25%, 50% or 75%. The remaining share is owned by a housing association and the buyer pays rent on this. Over time, the buyer can increase their share until they own the property outright.

The good thing about shared ownership is it enables you to slowly build up ownership of your home.

The drawback is the choice of properties can be limited as it is only “available on particular housing association properties and specific eligibility requirements may apply”, says David Hollingworth, mortgage specialist at broker London & Country.

NEWBUY

Through NewBuy, the government and the property developer underwrite a mortgage in order to reduce risk to the lender. Developers pay the lender 3.5% of the property price, while the government provides a guarantee of 5.5%. You can then provide a deposit of as little as 5%.

Unlike the other two schemes, this allows you to buy a house outright rather than only buy part of it. The only restrictions are that it has to be a newbuild property worth less than £500,000. This is also the only one of the schemes that isn’t restricted to first-time buyers.

However, there is some concern over the rates on offer. Despite initially launching products at reasonable rates (averaging 4.29%) the lenders involved in the scheme have now hiked up their rates with a two-year fixed, now averaging 4.79%, and a three-year fixed hovering around the 6% mark.

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