Your First Home: what the new equity loan scheme means for first-time buyers
Just 2.5% down on a new-build, with the Government covering 20%. The fine print arrives with the Budget.
If you open a newspaper, watch the news or read what comes up in the doomscrolling news on social media, you’ll have probably realised that, economically speaking, things are currently tough.
The country is in an “affordability crisis”, fuelled by the rising costs of goods diminishing the disposable income available to the household. This is largely the result of two factors: the wars in Eastern Europe and the Middle East strangling the supply of oil, and the long hot summer of successive record-breaking heatwaves that have resulted in very poor yields for farmers.
The cost of transporting goods has therefore gone up, and the supply of food has been limited, pushing prices up as a result.
The squeeze on first-time buyers
All of this means that anyone wishing to get into the property market for the first time will experience financial difficulties to the point that many potential first-time buyers no longer believe they are able to get on to the property ladder.
This hasn’t been helped by two additional factors: the rate of inflation has risen faster than the increase in annual income (which is used by mortgage lenders to assess whether you are a good risk in providing a loan), and house price inflation has long since outstripped the equivalent in income, which means that the availability of affordable properties is dwindling rapidly.
The state of the housing market is a key indicator of the health of the general economy, so successive governments are always keen to come up with a variety of schemes to help those less fortunate buyers, with first-time buyers often the main focus. After all, this group of buyers don’t have the benefit of any accrued equity when it comes to selling a home since they have never owned one.
There is a handful of schemes running at the moment to help first-time buyers, which promote saving for a deposit and provide financial assistance to get on to that first rung of the property ladder.
How the Your First Home scheme works
But, on 26 September, the Government announced the creation of the Your First Home scheme, which again is aimed at first-time buyers. For the moment, the details are limited, with a promise that the scheme will be fleshed out in the Autumn Budget on 28 October.
Under the scheme, set out in a press release from the Ministry of Housing, Communities and Local Government (MHCLG), first-time buyers would put down a deposit of just 2.5%, with the Government lending a further 20% of the price through an equity loan. In other words, the Government helps fund the purchase and, in return, holds a stake in the property.
The scheme only applies to the purchase of a new-build property from a developer that has signed up to it. The equity loan will start off interest-free, and MHCLG says buyers using the scheme could save hundreds of pounds a month compared with a standard 95% mortgage.
Who will qualify
Not every first-time buyer will be eligible. MHCLG says there will be a cap on household income, and local caps on prices may apply to the new-build homes included. The scheme will only cover homes bought in England.
Developers who sign up will also be expected to contribute to the costs, although how much has not yet been revealed. We should find out more, including when the scheme will open, when the Chancellor delivers the Budget at the end of October.
The scheme, says MHCLG, recognises the challenges faced by both the first-time buyer and the construction industry, which is dealing with rising costs for building materials and the pressures caused by international geopolitics. It should also provide the stimulus for the first-time buyer who has all but given up the hope of ever owning their own home.
Getting the right advice
It is strongly recommended that you seek professional financial guidance, such as from a mortgage broker, who will be able to assess your position and identify which mortgage products best match your needs, as well as helping to clarify the various schemes that are currently operating and your eligibility to take advantage of them.
Key, too, to the success of buying a home is appointing a good solicitor. This is a clear necessity when you’re buying any home, and especially a new-build. To manage the sometimes bewildering legal side of the transaction, you can still find a value-for-money firm that provides a focused, quality service, like Best Value Conveyancing, while keeping firm control of the cost.
Fixed-fee conveyancing for your first home
With Best Value Conveyancing, a solicitor from our panel will look after the legal side of your purchase and keep it moving without sacrificing quality. All our quotes are fixed prices, we tell you the cost of the standard disbursements up front, and our no completion, no fee guarantee applies should your purchase fall through, even if you are gazumped.
Call 0800 0387 007 to get your transaction started, or get an instant conveyancing quote online.
