By 2010 the government hopes that 25,000 people a year will buy a home using one of its three HomeBuy plans. Helen Monks finds out if you should consider one of these offers
Frustrated first-time buyers can find government-subsidized home ownership schemes a lifeline in the fight to get on to the property ladder. But since 1997 only 80,000 buyers have been helped via HomeBuy plans, launched last year, plus the old shared equity and shared ownership provisions combined. Find out how much you can borrow As the names suggest, New Build and Social HomeBuy plans are aimed at those looking to purchase new homes and social housing tenants looking to buy their rented home, with both involving buying a proportion of a property and renting the remainder from a registered social landlord, such as a housing association, who also go under the names 'zone agent' or 'HomeBuy agent'. These plans allow buyers to benefit from lower monthly costs than if they were paying back a mortgage on a 100 per cent owned property: "With New Build HomeBuy you get the benefits of owning at the cost of renting," says Dayton Rogers, sales and marketing manager at housing association and HomeBuy agent Thames Valley Housing. Calculate your mortgage repayments here Open Market HomeBuy offers applicants greater choice of the sorts of properties they can buy and provides special equity loans from both the government and a handful of appointed mortgage lenders. These loans are interest-free, on condition that if the price of a borrower's property goes up, they pay back a portion of the increase based on the percentage of their property they bought with the interest-free cash. Whether or not you might be one of those eligible for any of the three HomeBuy schemes depends on different criteria, depending on which arrangement you go for and where you live. Broadly speaking, eligibility depends on your either being a 'key worker' or social housing tenant, or on a local authority's waiting list for social housing. Alternatively, you might have been accepted on to your local authority's list of priority first-time buyers and acceptance on this list depends on your income being under certain thresholds. Open Market HomeBuy schemes are broken down into two options and working out the ultimate costs involved is more complicated than the standard way of borrowing money to buy a property. With option one, buyers must be able to find a mortgage for at least 82.5 per cent of the property's value, with the remaining costs met by an equity loan of up to 17.5 per cent from a HomeBuy agent. This loan does not attract interest, but when you come to sell, you will need to give your HomeBuy agent a proportion of the increase in the price of your property. With option two, applicants need a mortgage of 75 per cent from one of the government's four appointed lenders, Halifax, Nationwide, Yorkshire Building Society and Advantage. Two equity loans of around 12.5 per cent of the property's value are provided, one from the chosen lender, the second through the HomeBuy agent. For many HomeBuy schemes (save for option two Open Market HomeBuy), there could be a much greater mortgage choice than it might seem, says Anthony Moss of Best Advice Financial Planning, an independent financial advisory firm specialising in HomeBuy cases: "We know there are lots of lenders who don't actively advertise they lend on HomeBuy properties but do. Though it seems like less, there are around 30 lenders willing to consider lending to HomeBuy customers.” Speaking to a specialist adviser could well help you find the best HomeBuy mortgage deal. Find a best-buy mortgage Beyond the mortgage, in terms of how overall scheme costs might work out, the financial regulator, the Financial Services Authority (FSA), gives the following example of someone buying a house under the second Open Market HomeBuy option: a buyer purchases their home for £150,000 using a deposit of £3,750 (equity loans cannot be used as a deposit or to cover legal costs and the like), a standard mortgage of £112,500 and a £18,750 equity loan, which is 12.5 per cent of £150,000 from a HomeBuy agent, which is 10 per cent of the property's value. When this homeowner sells, the property has increased in value by 20 per cent, or £30,000, meaning they will owe his mortgage lender's equity loan of £18,750 plus £3,750, a total of £22,500, as well as the £15,000 they originally borrowed from their HomeBuy agent, plus 10 per cent of the £30,000 increase which is £3,000, giving a total of £18,000. All of these costs need to be weighed up carefully when borrowers sign up to HomeBuy with a view to what outlay you might need to be prepared for when you move on. The good news is, should your property go down in value, you won't have to find extra cash to pay back, so the schemes provide some protection against negative equity, where the size of your mortgage is more than the value of the property. Under New Build HomeBuy, applicants buy between 25 and 75 per cent of their home and pay a subsidised rent on the remaining proportion owned by their housing association. Applicants need to be able to raise a mortgage for the part of the property they want to own and, in common with Social HomeBuy, have the option of 'staircasing' up to owning 100 per cent of the property. The upside of newbuild homes is that most newly built properties are protected by a ten-year guarantee, meaning if certain repairs are needed, owners will not be liable. This is a particularly important point to bear in mind, as while HomeBuy part owners may only have a mortgage on one quarter of their property, they are liable for 100 per cent of the cost of repairs in the way a regular 'full' homeowner is. Eligibility for New Build HomeBuy and Open Market HomeBuy varies from region to region, so the very first step for would-be applicants is to check with their local authority, see who the 'zone agent' or housing association charged with running the local HomeBuy scheme, is for your area, and check with them whether you could be in line for a government leg-up on to the property ladder.
How the schemes workWill I qualify?Doing the sums
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Date: 3rd, September, 2007 |
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