Haven't got enough saved up to buy your first home? No problem, the Government will help you out - as long as your income is low enough...
The Government rightly gets a kicking for a lot of its harebrained housing schemes, but now and again, whether through luck or judgement, it happens across a decent idea. And its range of shared equity HomeBuy schemes might just be the answer for many struggling first-time buyers.
What is HomeBuy Direct?
The Government has developed a range of five separate HomeBuy initiatives, aimed at helping first-time buyers into home ownership:
New Build HomeBuy
The borrower shares ownership of the property with a housing association, paying a mortgage on the portion they own, and rent on the rest.
Open Market HomeBuy
The borrower takes out a conventional mortgage to fund part of the purchase, with a low-interest equity loan covering the rest.
Social HomeBuy
A housing association and local authority tenant buy the home on a shared ownership basis or outright, with a discount on the share being purchased.
Rent to HomeBuy
The tenant pays reduced rent on a new-build home for up to five years, to help them save for a deposit and purchase the property
HomeBuy Direct
The last scheme is HomeBuy Direct. Under the scheme, the borrower takes a 70% stake in a new-build property, with the Government - via its Homes and Communities Agency - and the developer together providing an equity loan of 15% each for the rest of the property. When the property is sold on, these parties will then be due 15% each of the proceeds of the sale.
The equity loans are only repayable after 25 years, and are interest-free for the first five years. After that, you will pay a fee of 1.75% on them, rising annually by the retail price index plus 1%. However, you can reduce the impact of this by making part repayments on the equity loans after the first twelve months of the deal.
It has already proved the most popular of the schemes, with the Government devoting an extra £80m to HomeBuy Direct in the Budget, on top of the £400m it had already committed to the initiative.
Who qualifies for HomeBuy Direct?
One of the Government's biggest failings with this scheme has been how poorly it has been marketed. Most people, perhaps understandably, expect it to only be open to key workers. However, HomeBuy Direct is actually available to anyone who cannot afford to buy a home on the open market, whose total household income is less than £60,000.
You will be expected to demonstrate the ability to sustain home ownership, as well as demonstrate a good credit record, and have the money available to pay the usual costs of moving, such as Stamp Duty and any legal fees.
Which lenders can help?
Irritatingly, just a handful of lenders have so far committed to offering mortgages in conjunction with the scheme, a situation made all the more bizarre when you consider the Government stakes in many of our banks.
Halifax and Royal Bank of Scotland led the way, before Nationwide jumped onboard at the end of last month. Woolwich and HSBC have also said they intend to begin offering products on the initiative.
Buyers should be aware that the Nationwide proposition is slightly different - while the other lenders involved with the scheme are generally prepared to lend the full 70% required, a 5% deposit is required with Nationwide.
What's the catch?
Perhaps inevitably, the process of getting on board with HomeBuy Direct is, to put it politely, a bit of a mess. For a start, the scheme is only available in England. The Government has divided England into 15 regions, each serviced by its own HomeBuy Agent, and these should be your first port of call.
Once you have registered with your local agent, you are required to see an approved independent financial adviser to ascertain your exact financial circumstances. The HomeBuy Agent will then assess whether you are eligible for the scheme. When they give you their approval, they will also include details of the applicable HomeBuy Direct schemes in your area.
After that, it's down to you to find a property you like and proceed with a mortgage. One important thing to bear in mind - the developers and HomeBuy Agents will likely push you towards one of the brokers on their panel to arrange the mortgage, and may pressure you into using them. You are under absolutely no obligation to do so, and can use whoever you like to help arrange the mortgage - and they are not allowed to charge a fee for the advice - though it does have to be done through a broker.
The scheme is also only available on certain sites. So far the Government has approved more than 18,000 properties for inclusion in the scheme, details of which can be found on the Homes and Communities Agency website.
The final catch is the fee for the products themselves. Buyers are not allowed to add the fee to the mortgage, which is plain daft in my view, as it is a further cost the buyer needs to cover upfront. While adding the fee to the mortgage does increase the overall cost of teh mortgage in the long run, and should not be done lightly, I think borrowers should at least be given the choice to decide for themselves.
Overall, the HomeBuy Direct scheme is far from perfect, and any first-time buyer considering the scheme should ensure they go into such a transaction with their eyes wide open. But struggling first-time buyers would do well to seriously consider it, as it does present a real opportunity for you to take that first step onto the housing ladder - without needing to put down a massive wad of cash upfront.
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