Mortgages. First-Time Buyers Let Down By The Governments Home buy Scheme.

Late last year, amidst significant fanfare, Gordon Brown introduced the Government’s new “Open Market Home buy” mortgage scheme aimed at assisting first-time buyers.

Overview of the Home buy Scheme:

Under this scheme, first-time buyers can obtain a mortgage covering 75% of a home's value with no deposit required. The Government and the mortgage lender will collectively finance the remaining 25% of the property. When the borrower sells the property, they will receive 75% of the net sale proceeds, while the remaining 25% will go to the Government and the mortgage lender. Additionally, borrowers have the option to buy out the Government's and lender’s 25% share at any time without incurring a penalty.

Why First-Time Buyers Should Approach with Caution:

1. Increased Costs:

Buyers will face a 1% premium on top of the standard mortgage rate, making the scheme more expensive than traditional mortgages.

2. Unclear Borrowing Limits:

The Government has not disclosed the income limits for eligibility, making it difficult to determine what price range of homes first-time buyers can afford. It's anticipated that the affordable housing options may be quite limited.

3. Limited Lender Participation:

Despite initial expectations, only a few lenders—Yorkshire Building Society, Halifax, and Nationwide—have joined as co-sponsors. No additional lenders have been added to the list, limiting the scheme's accessibility.

4. Low Availability:

The Government aims to assist only 4,000 first-time buyers annually, which represents just over 1% of the 361,000 first-time home purchases each year. This makes securing a Home buy mortgage extremely competitive.

5. Qualification Criteria Not Announced:

The Government has yet to release specific details on the qualification criteria for the Home buy scheme, leaving potential applicants in the dark about their chances.

6. Delayed Implementation:

The scheme is not set to become operational until October 2006, meaning it won't be available to potential buyers for some time.

Given these limitations and the additional costs associated with the scheme, it may be more practical for first-time buyers to seek advice from a reputable mortgage broker to find better deals on the open market. Concerns about the scheme’s effectiveness were echoed by Michael Gove, the shadow housing minister, who suggested that the scheme should be made more accessible and attractive to lenders. However, until clearer details are provided on eligibility and borrowing limits, the Home buy scheme’s practicality remains uncertain.