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Mortgages. First-Time Buyers Let Down By The Governments Homebuy Scheme.
By: Michael Challiner
Late last year, accompanied by the usual razzmatazz, Gordon Brown announced the
Governments new “Open Market Homebuy” mortgage scheme for first-time buyers.
Under the Homebuy scheme, first time buyers take out a mortgage for 75% of a
home's value with no deposit and the Government and the mortgage lender will in
practice buy the remaining 25% of the property. Then when the borrower
eventually decides to sell the property, the borrower will receive 75% of the
net sales proceeds and the remaining 25% of the sale price will go to the
Government and the mortgage lender. In the mean time, if the owner wishes to buy
out all, or part, of the Governments or mortgage lenders 25% interest, the
borrower can simply repay the money the Government and mortgage lender initially
put in.- there will be no penalty.
In our view, first time buyers shouldn't become too excited about this scheme
for six reasons: -
• The Government has recently confirmed that buyers will have to pay a 1%
premium on top of the usual mortgage rate.
• There has been no announcement as to the amount relative to income, which
borrowers can qualify for. So at this stage it's impossible to judge what sort
of house a first-timer could buy. However, we bet it's a very small one!
• Despite hopes that more mortgage lenders would join the Yorkshire Building
Society, the Halifax, and the Nationwide, as co-sponsors of the scheme, no
additional lenders have been added to the list.
• The Government expects Homebuy to lend to 4,000 first time buyers per year.
That's only fractionally over 1% of the 361,000 first time house purchases
arranged each year. In terms of availability, it seems as if Homebuy mortgages
are going to challenge hens teeth!
• The Government hasn't even announced the rules under which a first time buyer
can qualify to even apply for a Homebuy mortgage.
• The scheme is not planned to be operational until October 2006.
So even if you're happy to pay the 1% premium, your chances don't look too good
for qualifying for an Open Market Homebuy mortgage. Our advice is to forget
about them and find a top class mortgage broker to seek out a great deal on the
open market.
Signs that our reticence is shared amongst Members of Parliament came from a
comment from Michael Grove, shadow housing minister. He is reported as telling
the Sunday Telegraph that he wanted to see the Homebuy scheme made easier and
cheaper for lenders in order to encourage greater participation from the
mortgage providers. We think that's fine, but participate in what? Until we know
who can apply and how much they can borrow, the scheme means nothing.
About the Author:
Michael writes for Scrouge Online who offer Life Insurance and mortgages. |
