New FirstBuy Scheme Announced

publication date: Jun 21, 2011
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

New FirstBuy Scheme Announced

The Homes & Community Agency announces help for First Time Buyers to get ‘on the property ladder' with the new FirstBuy Scheme

A new scheme (well, strictly speaking, one to replace the old ‘HomeBuy Scheme') called FirstBuy has been announced, including the housebuilders that will be taking part.

A total of £210 million has been allocated during 2011 to 2013 to provide nearly 10,500 new homes for sale in England, with the first time buyer homes expected to be available for sale in September 2011.

FirstBuy works by offering  a loan of up to 20% of the purchase price to help prospective buyers secure a property without having to raise the 20-25% deposit themselves. The 20% ‘equity loan' is provided by the Homes & Community Agency and the other half by the housebuilder.

A first time buyer would have to raise a deposit and the mortgage equivalent to say 80%. For example, if the property was worth £130,000, the equity loan would be equivalent to 80% of this so as a First Time Buyer, you would need to pay for £104,000 of the property and this would require a deposit and a mortgage to this level. The 'equity loan' lasts for up to 25 years unless the property is sold, in which case it would need to be paid back at the time the property is sold.

Here's an example of how the monies might work*, but do bear in mind this assumes a rising market. If prices fall you may not be able to sell, but will still have to fund the mortgage:-

Purchase price:£200,000
Mortgage: £150,000 (75%)
Deposit:£10,000 (5%)
Equity loan:£40,000 (20%) (developer £20,000 (10%) + HCA £20,000 (10%)
For the first five years the equity loan is charge free

At the start of year 6 a low equity charge is levied of 1.75% rising at RPI + 1% per year thereafter.

Sale after 5 years:-
OMV:£210,000 (a 5% uplift in value)
Mortgage repayment:£150,000
Equity loan:20% of OMV split equally between the HCA + the Developer = £42,000 (£21,000 each)

Remainder available to the purchaser to use as a deposit £18,000 for their next purchase

* Information taken from the HCA Prospectus

To find out as a first time buyer if you are eligible, you can still buy even if you have a joint income of £60,000, but the property will need to be less than £280,000 (or £300,000 in exceptional circumstances). The decision though will need to be made based on your application and it's likely to be down to your income levels and your ability to be able to afford to buy in the area you need to live in.

To offer the scheme, housebuilders and housing associations have had to bid to take part. To date, successful bidders include some of the big builders such as Persimmon, Taylor Wimpey, Crest Nicholson and Fairview New Homes, but also includes national private builders such as Miller Homes, and local builders, for example Hopkins Homes and Morris Homes.

For more information and a full list of developers, visit: Homes & Communities FirstBuy


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