The
governments planned 50/50 scheme to help first time
buyers has been big news, but what does it mean to a
newby on the property ladder?
What’s
the plan?
Who
will it help?
How
will it work?
Will
it really work?
Criticisms
of the scheme
What
happens if you sell?
What if prices crash?
What
can I do in the meantime?
What’s
the plan?
Despite
the big press campaign the details of exactly how the
scheme will work have yet to be finalised.
Currently the Office of the Deputy prime Minister (ODPM)
is in discussion with a group of potential lenders.
Shared ownership has been around for a long time in
the public housing sector and this initiative is an
extension of existing schemes to include the whole of
the property market.
The main idea is that key workers and some first-time
buyers can take out a conventional mortgage but pay
only 75% of the cost - with the government and a mortgage
lender sharing the other 25%.
On top of this the lender and government might charge
rent on their bit of the loan and the borrower would
be expected to take care of the other costs of home
owning (buildings insurance for instance).
Who will it help?
The
scheme is expected to continue to help key workers
(who already benefit from existing schemes) and council
and housing association tenants who wish to take advantage
of the government’s Homebuy initiative and some
first time buyers in the wider property market.
It’s not yet clear how the first time buyers will
be selected – only 20,000 new buyers of the 500,000,
that according to Halifax estimates climb on the housing
ladder each year, will receive help under this proposal.
Expect the criteria for receiving help to be pretty
strict.
How will it work?
A
first time buyer would take out a 75% stake in an ordinary
mortgage.
A mortgage lender would take out 12.5% and the government
a further 12.5%.
The borrower may be required to pay ‘rent’
to the lender and the government to cover their debt.
Will it really work?
Until
the exact details of how the scheme will work are
published it’s impossible to say.
If put into practice along the lines outlined above
the scheme will undoubtedly help some first time buyers
in the private sector.
Plans to expand the scheme so the homeowner pays for
only 50% of the mortgage and then increases their
stake gradually until they own 100% are a long way
off.
Criticisms of the scheme include:
The lack of clarity (how will
the government define a first time buyer, for instance?).
Worries about the effect on the housing market.
Will demand outstrip supply in areas where there
is a high take up of the scheme?
The scheme will only help a small proportion of first-time
buyers.
What happens if you sell?
If
the price of the property increases the homeowner will
get 75% of the price when they sell. So the stake will
increase with the value of the house.
What if prices crash?
The
homeowner would be well protected if prices fell and
the house is sold at a loss. The government is responsible
for the first 12.5% of the loss and the lender the next
12.5%.
What can I do in the meantime?
Luckily
there are a number of commercial schemes to help soften
the blow of that first mortgage.
Some schemes offer above the purchase price loans.
Some lenders offer generous income multiples.
Others help family to fund the mortgage and avoid taxes.
So even if you can’t benefit from the governments
scheme you might find help on the high street.
Also
see How
much can you borrow and 100%
Mortgages)
See
some Possible
Solutions Help and Ideas for First time Buyers
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on about Mortgages
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