Yesterday’s Budget announced assistance for first time buyers by way of an interest free loan of 20% towards their purchase. Buyers must have a deposit available of 5% of the property value and apply for a mortgage for the remaining 75%. Details have yet to be announced but the scheme, called FirstBuy, is likely to be similar to the HomeBuy scheme introduced by the last Government. The scheme will only run for a year, only applies to new build properties and will be limited to 10,000 applicants.
The FirstBuy loan is only interest free for the first five years and after that there will be interest charged at 1.75%, increasing each following year at the rate of inflation plus 1%. It will be a second charge on the property and when the property is sold, the buyer has to pay back 20% of the value of the property at the time of sale so there is a risk that if the property has increased in value, any gain is largely swallowed up by the increased amount needed to repay the loan.
Applications for a FirstBuy Loan will probably be through nominated Housing Associations who will administer the scheme as with the previous HomeBuy loans. There are likely to be a limited number of mortgage lenders that you can apply to for the 75% loan so if you are considering this as an option , you will need to talk to the house builder first and find out who is offering the scheme before making any separate mortgage application.
Not surprisingly Housing Developers have welcomed the news as this may help them entice a few more buyers to their sales offices, but, as it only applies to newbuild properties, it is unlikely to have a very dramatic effect on the housing market.