More money available to help thousands of first-time buyers
Paula Higgins welcomes the increase in funding for FirstBuy
September 7, 2012
By doubling the size of the FirstBuy scheme, buying a newly-built home is now within the reach of many more aspiring homeowners. We welcome the government’s continued commitment as it provides practical help for those who may otherwise struggle to get on the housing ladder and get stuck renting.
The government has more than doubled the size of its FirstBuy scheme, which is matched pound by pound by house building firms. Government announced an additional £280 million for FirstBuy, adding to the initial £200 million guaranteed when the scheme launched in March 2011. Together with the match funding by building firms, this brings a total of almost £1 billion being set aside to help over 25,000 first time buyers.
Under FirstBuy first time buyers are given an interest-free equity loan of 20 per cent of the value of the house, although they do have to stump up 5 per cent for the deposit. This means that you will own 80% of the property and the government and homebuilder will own up to 20% of the property.
The loan is interest-free for the first 5 years, after which the rate slowly increases to encourage you to pay back the loan. You are eligible if your income is less than £60,000 – £74,000 in London with dependents.
This is one of several government-backed schemes at increasing home ownership with varying degrees of success. FirstBuy is one of the more promising initiatives. The 20 per cent equity loan provides a safety net so that vulnerable buyers do not fall into negative equity as soon as house prices dip. This is in contrast to the NewBuy scheme which guarantees the mortgage for people with just a 5 per cent deposit, but leaving them with all the risk.
FirstBuy and NewBuy are only available to people buying newly built homes and like new cars, homes immediately lose value when they are first purchased. New homes can fall by as much as 5 per cent as soon as the keys are handed over. As a result people on this scheme (who are most likely not to have much in savings) can find themselves immediately slipping into negative equity. With an equity loan this is less likely to occur.
To find out more about how FirstBuy and how it compares to the other government backed initiatives available, read our free guide on What help can I get from the government.