The Government's First Buy Home Owner Loan Scheme

The government’s First Buy loan scheme is designed to give first time buyers a help onto that difficult first rung of the property ladder. Using equity loans for new build homes this could be an excellent option for cash strapped first time buyers.

Who is Running the First Buy Home Owner Scheme?

The government announced the First Buy loan scheme in March 2011. Those who are considering this type of equity loan will have to apply through housing association organisations that have been authorised to act as Home Buy agents. At present this scheme is only available in England, and the government’s Direct Gov website can be used to find authorised Home Buy agents. The First Buy loan scheme can also be found under the name Home Buy Direct.

How Does the First Buy Loan Scheme Work?

First Buy scheme is suitable for first time buyers who cannot afford to buy a home; for example find the 10% or more required for a deposit on a property. The scheme involves equity loans, which is secured loan on the property. The government and the house building company will each provide 10% of the property’s value and the buyer should provide around 5%, giving a 25% deposit on the property. This loan will be interest free for the initial five years; interest will start in year six at 1.75% and inflation costs.

Will I Still Need to Pay a Deposit When Using This Scheme?

Home buyers will need to have an amount as a deposit. This amount can vary depending on the value of the property. The Home Buy agents suggest that a deposit of around 10% or 15% of the value property is recommended. There will be fees on the loan in year six and increase in year seven to 1.86%. These loan fees will also be dictated by the Retail Price Index (RPI) annual inflation. A £60,000 loan in year six would bring an annual fee of £1050, which would increase to £1116 in year seven. This is a monthly loan fee of just over £90.

How Much Will the Mortgage Loan Be?

The amount that a lender will give as a mortgage loan will depend on the size of the deposit. For example, a 25% deposit split between the government, the buyer and the building company will mean a lender mortgage of 75%. The term ‘equity loan’ is used due to the fact that the amount the home owner owes will depend on the rise and fall in the property’s value.

What If I Decide to Sell the Property?

The property does belong to the home owner and they are quite within their rights to sell if they choose. But if the property is sold then the government and the home build company will be legally entitled to a share; they did help with the deposit. Those who do not sell their home will be required to repay the equity loan in 25 years time from when the property was purchased.

Does the First Buy Loan Scheme Have Eligibility Requirements?

Yes, with the main eligibility rule being the amount of income brought into a household. The scheme is available for households with an annual income of £60,000 or less. This can be a combined income for those in the household. Another eligibility rule will of course be that potential property buyers are able to raise a certain amount of funds towards buying costs. According to the Home Buy agents this would likely be around the £4,000 figure. Eligibility can also include those who have owned before but cannot afford to buy again in cases of marriage breakdowns, and overcrowding is also a consideration.

Are Buyers With Poor Credit Records Eligible for the Scheme?

There should be no reason why a property buyer with a poor credit record cannot enter into the First Buy Loan scheme if they meet eligibility requirements. The only problem may be that the mortgage lender may set their loan interest rates higher for those with poor credit records. This would be the same as any lender setting their interest rates higher for any type of credit agreements for borrowers with poor credit records.

What Does Key Work Priority Mean in the First Buy Loan Scheme?

Certain buyers will be given higher priority than others. For example social tenants do have top priority and there is also the key worker priority. Key workers are those who work in roles such as the police, prison service, national health service and the educational field. But this scheme is open to anyone who fulfils the eligibility requirements.