Budget 2011: What is FirstBuy?
Thursday, 24 March 2011 12:10 PM
The 2011 Budget speech included three ways to help homeowners – a new way of calculating stamp duty for professional landlords, more help with mortgage interest for existing owners and the FirstBuy scheme for first-time buyers.
But with very few details given about FirstBuy, what does it actually mean for people still trapped in rented property? Could this finally be your chance to get a home of your own?
How does FirstBuy work?
Two of the things that decide how much you can borrow in a mortgage are the amount you need (as a percentage of the total price, or the 'loan-to-value ratio') and how much you earn (you can usually borrow an 'income multiple' of three or four times your salary).
But house prices in some areas are so high that even the highest loan-to-value mortgages are not enough to buy the house, as people just can't afford the deposit that pays for the rest of the property.
FirstBuy is a way to cover the cost of the deposit by letting the government buy part of the home for you, which you then pay for or give back later on – it looks like it's specifically about the deposit, rather than reducing the mortgage itself, although in some cases that could amount to the same thing.
If you move house without buying out the government's 'equity stake', you'll have to pay back the loan using the proceeds from the sale. If you buy out the government’s stake, then you own the home outright.
To qualify for the FirstBuy scheme, your combined household income must not exceed £60,000 and you will need to be able to put down a five per cent deposit.
What the Government says
It could be a few days or even weeks before the details of FirstBuy are set in stone, but the 2011 Budget itself gave a glimpse into the basics of the scheme.
"The government will provide an equity investment, jointly funded with house builders, through a FirstBuy programme assisting over 10,000 first-time buyers to purchase a new-build property," the Budget document said, with £250 million put aside to do this.
If you do the sums, that's an average of £25,000 for each person helped by the scheme – enough to put down a deposit of ten per cent or more on starter homes across much of the country.
What the professionals think
The Royal Institution of Chartered Surveyors (RICS) said FirstBuy could be good news for people at the bottom end of the property ladder, helping them to find a first home and spurring market activity.
RICS’ spokesperson added: "This is a key area as the lack of mortgage-lending has significantly reduced the number of homes being bought and sold, which in turn has led to low house-building levels.
"Although it would not be a solution to all housing problems, this could represent the first step towards a vibrant and sustainable property market."
Heard it all before?
If FirstBuy sounds familiar, that's because shared equity is nothing new. The government has had similar schemes in the past to help cover the cost of buying a house.
HomeBuy was a set of different offers including fee-free shared equity and a kind of buy-half, rent-half system that allowed people to pay only for the portion of the property they could afford, while renting the rest at a reduced rate.
Steve Lees, director of SmartNewHomes, pointed out that the new FirstBuy initiative is aimed specifically at new homes, giving it the chance to ease "the stagnation" at the lower end of the market.
For cash-strapped renters, though, the market might not seem so important, compared with the chance at last to buy a first home and get on to the property ladder.
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