The Government’s shared equity scheme, HomeBuy Direct, designed to help first time buyers get on the property ladder whilst simultaneously helping developers, has got off to a very slow start according to an investigation by Channel 4 News. The scheme, which was announced to much fanfare in September 2008, did not get off the ground until March 2009 and has apparently, helped just 215 people to buy a property.
The scheme allows buyers to purchase a house by taking out a mortgage for 70% of the property whilst the other 30% is made up by a loan from the house builder and the Government. This loan is interest- free for 5 years but then the developer charges a 1.75% annual fee on its proportion of the loan. The home owner gets the chance to pay off this extra equity in instalments - a tall order whilst simultaneously trying to pay off a mortgage. If the homeowner sells before paying off this extra equity, any gains are split between the seller, the developer and the Government. Similarly, if the property is sold after it has fallen in value, the homeowner will get the value of the mortgage back in order to repay the outstanding loan and any leftover will be split between the developer and the Government.
To qualify for HomeBuy Direct, you must be a first time buyer, have a household income of under £60,000 per year and buy a specific new-build home from one of the 15 regional HomeBuy agents. The loan taken out for 70% of the property is with a mainstream regulated mortgage lender.
Although homebuilders have no choice but to admit that the scheme has been slow to get going, they claim that HomeBuy Direct is a success and that Channel 4’s investigation failed to take into account the properties currently going through the sale process. They say that there are at least 2,000 sales in the pipeline, although John Stuart of the Home Builders Federation admitted that the target of 18,000 was unlikely.
In addition to its slow uptake, the scheme has come under attack for allegedly having a minimum mortgage size, making it simply unaffordable for some first-time buyers. Channel 4 spoke to a potential buyer who had been looking at a Barratt development in Croydon. She told them that the developer had said that she had to buy a bigger flat to make the minimum mortgage required, adding an extra £40,000 onto the loan. Consequently, the repayments on just 70% of the property would have been over £1000 per month.
If you think that HomeBuy Direct might be your route onto the housing ladder, look on the Government’s communities.gov.uk website. Alternatives to the scheme include going directly to a developer; you may be able to secure sizeable discounts currently as many are stuck with an oversupply – particularly in new-build flats. Some developers also offer shared equity which may beat the Government’s terms and conditions. Unfortunately, another, more flexible, Government shared-equity scheme, Openmarket Homebuy, which allowed the buyer to choose a property on the open market has run out of funding and has been shelved.