PLEASE NOTE

This programme has now been updated to the Home Buyer scheme

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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?

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)

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