The government's Open Market Homebuy shared-equity scheme launched with only three lenders today, rather than the originally proposed four.
Advantage, Yorkshire Building Society and Nationwide will, from today, offer specific products for key workers, first-time buyers and social tenants with Bank of Scotland launching its own product later in the year.
The delay in the launch of the Bank of Scotland product follows on from both Abbey and Alliance & Leicester pulling out of the scheme at an early stage of negotiations with the government.
Yvette Cooper, minister for housing and planning at the Department for Communities and Local Government, said this morning there is support from the mortgage lending community and the DCLG is speaking to more lenders about their involvement in the scheme but refused to say which lenders, or how many, the government was in talks with.
Eligibility for the pilot scheme will depend on regional needs with some regions placing more emphasis on the need for key workers or social tenants than others.
In London, key workers, social tenants and first-time buyers on an income of less than £49,000 - or in the case of a couple a joint income of less than £49,000 - will all be eligible for the scheme. In other parts of the country, a first-time buyer couple on a joint income of less than £60,000 will be eligible for the scheme although the DCLG says those on lower incomes will be given priority.
Independent financial advice will form a key plank of the new scheme.
Those wishing to take a Homebuy mortgage will first speak to a Homebuy agent employed by local Housing Associations to provide generic advice about the scheme and what it offers. Potential borrowers will then be advised to seek independent advice from a panel of around three or four local IFAs working in conjunction with that Housing Association.
The scheme should see the government invest £230m over the next 18 months in an effort to reach 10,000 households in the next year and 20,000 by 2010, and the government claims the scheme will make a “big difference to affordability.”
However, Cooper would not make any specific pledges on government funding for the scheme beyond the inital 18-month period.
The government's Open Market Homebuy scheme means key workers, social tenants and first-time buyers essentially only have to get a loan for 75% of the property, as one of the lenders will provide 12.5% and the government will then pay the remainder 12.5%.
The catch is both extra elements provided at the early support phase will have to be repayed, with interest, from the gains a property makes, should the homeowner decide to move.
As a result of the equity loans offered, the borrower does not necessarily have to save a deposit before applying for a mortgage with one of the participating lenders. But if they do this can be used to reduce the equity loan from the government.
In the event house prices fall or the borrower cannot maintain the regular payments, leading to repossession, the mortgage is given the first charge, then the lender’s equity loan and finally the government’s equity loan.
Cooper says: “We want to help more families get a first step on to the housing ladder. If you haven’t got a family or friends who can help it can be hard to get started. In the long run, we need to build more homes to ease the pressure on house prices. But in the meantime this new mortgage deal will help thousands of families into a home of their own.”
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