Q. The Government’s new FirstBuy scheme sounds like good news. Is it?
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A. For those who don’t know, FirstBuy is a new shared equity scheme, jointly funded by the Government and the construction industry to the tune of some £500million over the next two years. Designed to help hard-pressed first time buyers onto the property ladder, it was first announced in the Budget, and last week it was revealed that over 100 of the country’s leading house-builders have already signed up. At the same time, a number of major lenders have agreed to offer special 75% FirstBuy mortgages.
How does it work? Well, as long as your annual household income doesn’t exceed £60,000 and you can find a 5% deposit, the Government and the developer between them will stump up a further 20%, thereby effectively enabling you to put down a total of 25% on certain new-build properties, up to a maximum price of £280,000. The 20% will be in the form of a loan, interest-free for the first 5 years, to be paid off in full when the property is eventually sold on.
So, isn’t this good news? The house-builders obviously think so. But then they would – because with a lot of unsold stock on their hands, they look set to be the main beneficiaries. The fact is, the scheme only applies to new-build properties in certain specified developments – and you can bet your life these will the ones that the industry hasn’t been able to shift any other way. That hardly bodes well for their resale value. In any case, this is a shared equity scheme – so when you do come to sell, you will have to pay back not only the original 20% loan, but also 20% of any increase in value.
No wonder the house-builders are so keen!
But does all this matter, if the scheme succeeds in reigniting the housing market as a whole? Sadly, it won’t: firstly, because it is only expected to help around 10,000 first-time buyers, which is a drop in the ocean; and secondly, because new-build transactions are “chain-free” – so they will do nothing whatsoever to help boost wider sales.
Other than that, it’s a cracking idea!